Tax Evaders to Face Music for Demonetisation Adventures

Tax Evaders to Face Music for Demonetisation Adventures

Bhumesh Verma 17/12/2017 11

Due to demonetisation operation launched by the Indian government last year, many individuals and corporates were caught unaware. They had plenty of unexplained cash and 50 days to deposit it all in the banking system.






Most of these persons and entities ‘outsourced’ the deposit mechanism and deposited unexplained and unsecured cash running into millions and billions of Rupees with the banks through others. The underlying master plan was to convert unexplained / ill gotten / illegitimate cash into legal currency and to get away with a tax of around 30% on unexplained deposits and other related consequences.


This was considered to be the smartest way to manage and survive from the surveillance and raids of Income Tax (IT) department and avoid penalization under the laws for possessing illegitimate cash.


However, tax evaders propose and government disposes.


The government is in no mood to oblige or ignore the unexplained deposits made into banks. It has issued orders to IT department to conduct strict verification of all revised IT filings post demonetisation and reject the filings containing unexplained cash deposits. This development has comes as a shocker to many persons / entities involved in covering up and using proxies for deposits.


Many revised filings have been rejected by IT department for the reason of inclusion of unexplained cash deposits in the filings. Further deepening the woes of such taxpayers, IT department is considering to invoke Benami Act (Act) against certain taxpayers for possessing unexplained credits in the books of accounts (Corporates) and bank accounts (individuals).


Going forward, a taxpayer (not being the true owner) possessing cash or properties of another person with the idea of evading the tax will be prosecuted under the provisions of Act and punished according to the Act.


As of now, a tax payer will only be penalized for possessing unexplained credits up to 80% of such credits, but with the application of the Act, any tax payer who committed any default under the Act will be criminally prosecuted.


Act is applicable only to the unexplained deposits (if off the record owned by another person) but possessed by a corporate and individuals and officially maintained under the name of such corporate and individual with the intent of evading tax.


For example, if ‘X’ deposited unexplained cash into his bank account and that cash originally belonged to ‘Y’. ‘Y’ only used ‘X’ as a conduit or a benami for officially possessing cash actually owned by ‘Y’ – the underlying intent being evading tax payment, then such transaction will come under scanner of Act.


Accordingly, in the above illustration, if the unexplained cash can be proved to be actually and absolutely owned by ‘X’, then the Act is not applicable.


Government is taking right measures to clean up all the mess created post demonetisation and punish culprits who misused the tax laws and schemes for their own benefit.


High time for honest tax payers to stand up and not be used by others as proxies. All should maintain true and correct records of the cash and properties owned by them to avoid embarrassment from getting punished for breach of laws or else they have to pay a hefty price for all the fraudulent acts committed – else exposure to penalty or even jail are very much on radar.

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  • Akshay Parmar

    GST will finally change the game for those who avoid to paying taxes, that's a positive news for good tax payers. We should all contribute to our economy.

  • Harmeet Singh

    Wrong filing of returns along with technological problems had delayed the refund for exporters

  • Sonu Khan

    This will also lead to more stringent scrutiny of the movement of goods between states as well as corporations.

  • Pooja Chauhan

    On a positive note, companies will work harder to help the tax authorities to monitor better the movement of goods but also help reduce transportation time by reducing loss of time at check posts.

  • Shaurat Hossain

    Demonetisation was an absolute failure

  • Riyaz Khan

    Finally a step forward after a decrease in demand, lump in growth, massive inconvenience, and other tangible and intangible damages to the economy

  • Anish Joshi

    You have very informative articles about India. Keep going!

  • Alwin Sunny

    I still think that demonetisation has a little positive effect on the Indian economy

  • Pawan

    To all the haters, just tell me how many steps the previous government took for the development of our country? I will wait for you !!

  • Aamir Asad

    In reply to: Pawan

    Wow that logic though....diverting from the issue at hand by raising an issue which is not relevant....diversionary tactics......

  • Saket Saurav

    I agree demonitisation didn't got expected success but it achieved partial success for what it has been implemented. I'm sure in long-term it benefits india. It was a historic bold move by Modi.

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Bhumesh Verma

Legal Guru

Bhumesh is the Managing Partner of Corp Comm Legal, an Indian law firm. He is ranked among the Top 100 Indian corporate lawyers. He is advising domestic and foreign companies on M&A, joint ventures, corporate - commercial issues. Besides, he has written a book on Drafting of Commercial Agreements, has a couple of books in pipeline and trains students and professionals on Drafting Skills and corporate laws. He writes regularly on legal, business & other issues and is a guest faculty lecturer with educational institutes. Bhumesh holds a Bachelor of Laws (LLB) from the University of Delhi and a further qualification in International Law and Legal Studies from College of Law, York.

   

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