Demonetization: Taxpayers to get I-T notices

The following article is based on my own interpretation of the said events and/ or publicly available information. Any material borrowed from published and unpublished sources has been appropriately referenced. I will bear the sole responsibility for anything that is found to have been copied or misappropriated or misrepresented in the following post.

Aman Sadha, MBA 2016-18, Vinod Gupta School of Management, IIT Kharagpur


 

According to the sources, Government claims to have identified 18 lakh individuals who will be required to disclose the large cash transactions through their individual accounts soon after the demonetization rule by the PM of India, Narendra Modi. These accounts were identified using data analytics, in the period of 9th Nov 2016 to 30th Dec 2016, by matching the transactions of an account with the account holder’s tax profile.

For the convenience of the people, tax department has enabled online verification of these transactions. Every permanent account holder would be able to view information about their transactions through income tax e-filing portal. Swacch Dhan Abhiyan is a tax department’s programming software which is supposed to be used for getting answers on the deposits made, and only after a preliminary session of questions and answers, legal actions would be taken. Furthermore, for the ease of people, they will also be informed through messages and emails by income-tax department. The accused will have to file their explanations online at ‘www.incometaxindiaefiling.gov.in’ within 10 days to avoid notices and legal enforcement.

According to the Income tax department, in the initial phase, they will put up data of people, using data analytics, who deposited more than 5 lakhs during the period or who has poor tax compliance or with suspicious transactions up to 5 lakhs. If tax department gets satisfied with the information, there would be no follow up. Tax department has also provided a reference guide and a helpdesk number for the smooth functioning of this initiative. Additionally, the verification will be closed if the cash deposit is made under Pradhan Mantri Garib Kalyan Yojan (PMGKY), the disclosure scheme of black money. This initiative has received mixed responses from the general public, but it is surely going to create trouble for the arbitragers, who took this demonetization as an opportunity for lifting up their bank balances.

 

Advertisements

Union Budget 2017 – Income tax relief v/s Corporate tax relaxation

The following article is based on my own interpretation of the said events and/ or publicly available information. Any material borrowed from published and unpublished sources has been appropriately referenced. I will bear the sole responsibility for anything that is found to have been copied or misappropriated or misrepresented in the following post.

 

Ronak R Choksy, MBA 2016-18, Vinod Gupta School of Management, IIT Kharagpur

_________________________________________________________________

Perhaps the only other thing in India that gets as much attention as cricket and Bollywood, is the Union budget. There already are a lot of eyes on the budget session that is coming up on the 1st of February. This year’s budget is special due to a number of reasons. Firstly, for the first time, the Union budget and the railway budget are going to be announced together and on February 1 instead of the usual February 28. Secondly, Uttar Pradesh Legislative Assembly elections are due in February. A populist budget has the potential to turn around the UP elections in BJP’s favour. And most importantly, this will be the first budget after Prime Minister Narendra Modi’s bold demonetization move in November.

Demonetization has reduced people’s spending. There are concerns over slower GDP growth of our country as a result of demonetization. IMF has cut India’s growth forecast to 6.6% from 7.6% after demonization. Hence, most people believe that the government might relax the income tax slabs to boost public spending and get the GDP back on track. According to most newspaper speculations, basic tax exemption limit should be increased to from the current Rs. 2.5 lacs. But in my opinion, such a tax relief will not help much in boosting spending because only 1%-2% of the Indians (or roughly 4% of labour force) pay taxes. Instead the budget might focus more on boosting agriculture and rural economy as they were the most hard-hit among all. The government may also consider lowering corporate tax rates to enhance the economic growth. Lower corporate tax will boost corporate investments in research and development and infrastructure and will also create more employment. This will also attract more foreign investment in India. Lower corporate tax may not necessarily mean lower revenue for the government. In fact in the past we have seen an increase in government revenue after lowering corporate taxes. Hence as compared to relaxing income tax, decreasing corporate taxes makes more sense in this situation.

Honest Criminals

The following article is based on my own interpretation of the said events and/ or publicly available information. Any material borrowed from published and unpublished sources has been appropriately referenced. I will bear the sole responsibility for anything that is found to have been copied or misappropriated or misrepresented in the following post.

Avantika Bhargava, MBA 2016-18, Vinod Gupta School of Management, IIT Kharagpur


Digitisation has crept within government and businesses in India after the night of 8th November 2016. The reluctance which prevailed amongst us due to inefficient online banking systems was forced upon and now what stands in front is the hard earned money unprotected. This is not an exaggeration. Let me explain why.

Considering the spiked growth in online transactions, cybercriminals can now comfortably run their organised business operations. Ransomware is a league that haunts many businesses and individuals.

If critical files in our personal laptop become inaccessible someday by a ransomware operator by encrypting and scrambling the data, only to find out that we need to pay a sum to the cyber attacker to gain access to those CRITICAL files. It sounds disastrous. On successful payment, they shall deliver the decryption key as a perfect business partner as the mafia is cautious about its reputation and do not soil it.

In order to avoid this malware mafia and its bigger plans, India is trying to push biometric authentication for Aadhaar based transactions but fingerprints also stand under the radar because of wear out. Problem with an iris or finger print scan is that one can cut off your thumb and still use it to gain access. A very recent technology which uses infrared to read blood veins in the palm has come out as an answer to this problem.

While India needs to gear up, a new regulation will come into force from 2018 in the EU mandating tough penalties to check the growth of this malware mafia of honest criminals.

DEMONETISATION: A SUCCESS OR A FIASCO?

The following article is based on my own interpretation of the said events and/ or publicly available information. Any material borrowed from published and unpublished sources has been appropriately referenced. I will bear the sole responsibility for anything that is found to have been copied or misappropriated or misrepresented in the following post.

Moumita Biswas, MBA 2016-18, Vinod Gupta School of Management, IIT Kharagpur

______________________________________________________________

On 8th November 2016 India’s Prime Minister, Mr. Narendra Modi, announced that Rs 1000 and Rs 500 notes will no longer be the legal tender in most places. India’s two highest denomination currency bills accounted for up to 85% of the total money in cash. Owing to the fact that a high percentage of the transactions in the country took in the form of cash, the decision to demonetize caused immediate economic slowdown in the country. For a fast growing economy like India, having black money account for 20% of the GDP, it was an essential step for the government to purge the black economy of the country. The citizens were given until the end of the year to return any old notes. The solution to the cash shortage was to be met by the two new high denomination banknotes of Rs 500 and Rs 2000.

This step described by many as “draconian” received the wrath of the critics. The immediate effects could be seen in the form of inflation. Although the step was to purge the black money of the rich millionaires it affected the lifestyle of people from all strata. Office goers had to stand in queues from early morning to get cash for the rest of day as the exchange amounts were low. Villagers who are not so fluent with the working of banks and ATMs struggled to cope with the changes. Day to day life became a bout for some. To many it seemed like the ones hoarding the piles of illicit cash had an easier time dealing with the changes.

The decision was termed a “fiasco” by many based on the facts that there were numerous ways by which the black currency could be retained. The country saw what could be called “The intelligence of evil”. Black money was converted to gold or other forms jewelry by many, some companies started giving salaries in advance. Others salvaged their illegitimate wealth by employing people who would go and stand in queues to get their currency exchanged. Some resorted to the help of their poorer relatives. Criticisms came in other forms too. The lack of proper credit leading to the shutdown of small firms, religious and marriage ceremonies being halted combined with the very fact the new currency notes of 2000 gave an easier opportunity to pile up black money turned out demotivating. Owing to these facts demonetization shaved off some amount from the GDP growth of the country.

All decisions come with pros and cons and so too did demonetization. The aim of improving the economy by breaking down the shadow economy was partially fulfilled as a huge amount of money was deposited by people all over the country. The tax take of the country was boosted. As depositing a great amount of money would look conspicuous and attract the attention of the government a good amount of the money was not deposited back. This serves as an asset for the government. The RBI can reprint notes up to this value and transfer it to the government. Although the promotion of electronic methods of fund transfer came under scrutiny as various scams had previously occurred in the country, it made record keeping easy and the banking process more efficient allowing for better tracking and taxing proceedings.

Having achieved what demonetization achieved and having caused what turmoil it did one must look at the political nature of the mixed reactions of people. Every move made by the Prime Minister or any renowned political leader of the country receives harsh criticism at the hands of the political leaders of the other parties. A lot of criticism blown out of measure and a lot of appreciation lost in the midst of piling disapproval. A single move cannot be expected to take out all the dirt that floats around in the country. Backup measures that accounts for amount of money deposited in bank by wealthy people, amount of gold and jewelry bought etc. must be monitored. Keeping all aspects of the view in mind the ultimate price for the success or failure or the risky tactic is to be paid by Mr Narendra Modi. Only the next election can reveal the true effect of the radical move.

India-From Cash to Cashless Economy

The following article is based on my own interpretation of the said events and/ or publicly available information. Any material borrowed from published and unpublished sources has been appropriately referenced. I will bear the sole responsibility for anything that is found to have been copied or misappropriated or misrepresented in the following post.

Vinay Agrawal, MBA 2016-18, Vinod Gupta School of Management, IIT Kharagpur


On November 8, 2016, Narendra Modi Government has banned the use of 500 and 1000 currency notes as a fight against black money and corruption. As a result, the most important outcome of this move is to drive towards a cashless economy. Currently, cash is used for 95% of all transactions done in India. This makes it impossible for Income tax Department to track all transactions leading to black money. Only 1% of Indians pays Income tax.

This move towards cashless economy will enable in tracking transactions, reducing tax avoidance, curbing the generation of black money, bringing more people under Income tax net, reducing the cost for RBI in maintaining cash etc. Demonetization is a great step in this direction. After this initiative, the number of e-payment users increased drastically. Paytm reported a three-time increase in new users whereas Oxigen Wallet’s daily average users increased by 167% since demonetization began. The introduction of BHIM app by Government is also intended to promote the cashless economy.

There is also a lot of challenges towards a cashless economy. Firstly, is the lack of presence of internet connections. Secondly, most of the people live in villages who do not know much about technology. Thirdly, the penetration of Smartphone is only 17%. At last we Indians are culturally more comfortable with cash. In a nutshell, we have to go a long way in achieving cashless economy and demonetization is one step in this direction.

References

http://www.forbes.com/sites/wadeshepard/2016/12/14/inside-indias-cashless-revolution/#4bae5a2f18c7

http://www.civilsdaily.com/story/cashless-society/

Demonetization – Lack of readiness

The following article is based on my own interpretation of the said events and/ or publicly available information. Any material borrowed from published and unpublished sources has been appropriately referenced. I will bear the sole responsibility for anything that is found to have been copied or misappropriated or misrepresented in the following post.

Susmitha Vagolu, MBA 2016-18, Vinod Gupta School of Management, IIT Kharagpur

_________________________________________________________________

PM Narendra Modi launched a surprise in  November, demonetization of 500 and 1000 Rs notes.This initiative resulted in a huge disorder and confusion as government took out 86% or 15 lakh crore of the circulating cash. 98% of transactions in India are based on cash, which were almost stopped at one go.

The first criticism that came out is the lack of readiness of the entire exercise. From statistics, the amount of cash that is there in India and digital penetration in India do not directly point to readiness of  economy or of the people. The ratio of money held in notes and  coins to the amount that is held in savings and demand drafts was 51% which is high when compared to other emerging economies. Secondly, the value of notes and coins as percentage of GDP was 12.04%. Less than 3% of the value transactions include card payments in the year ending March 2014. Fewer than 2% of Indians have used a mobile phone to send or receive money compared to 60% of Kenyans. So, practically there is a significant usage of cash in the economy and though the digital penetration is high, usage of digital modes for transfer of funds has been low. On the supply side, the capacity of 3 printing presses in India is not enough to print the banned amount. Also, the circulation of money has come down as there are less notes of lower denomination in market.

These statistics reveal that neither the government was  prepared to immediately pump in deficit cash nor the country was prepared to migrate to a new system. Lack of readiness has resulted in a sudden economic slow down. The human productivity was also affected in terms of people waiting in queues at the ATM’s. There has been reports of people loosing lives. Lack of digital literacy in terms of security is the main reason why people are reluctant to migrate to online platforms like Paytm, mobikwik for money related transactions even in such critical situations. Government should take up more initiatives like BHIM , SBI buddy to improve awareness and trust among people.

 

References

https://hbr.org/2016/12/indias-botched-war-on-cash

http://www.internetlivestats.com/internet-users/india/

https://rbidocs.rbi.org.in/rdocs/AnnualReport/PDFs/0RBIAR2016CD93589EC2C4467793892C79FD05555D.PDF