By Ishita Misra
Demonetisation, announced in November 2016, was a bold step taken by the government to curb black money in India. Since demonetization, there has been a 132 percent increase in tax raids and a 31 percent jump in unearthed black money. The heightened tax vigilance led to black money amounting to Rs. 14,697 crores being found in the April to February period of 2016-17. This was a substantial increase in comparison to the Rs. 11,226 crores of black money unearthed during the entire fiscal year 2015-16. Additionally, the Prime Minister mentioned in his Independence Day speech that bank deposits worth Rs. 1.7 lakh crores are under investigation post-demonetization. While the investigations include deposits in Jan Dhan accounts, dormant and inoperative bank accounts are also coming under the scanner of the income tax investigators.
Suspicious awakening of dormant accounts
As per Reserve Bank of India (RBI) guidelines, a savings or current account is classified as dormant or inoperative when no transaction has been recorded in it for two years. Both credit and debit transactions made by the account holder and third parties are considered when an account is classified as inoperative. Because inoperative accounts are more susceptible to cases of fraud, RBI enforced strict guidelines in 2008 for banks on how to segregate and deal with inoperative accounts to prevent fraud. The classification of inoperative accounts is done to bring these accounts to the notice of the dealing staff.
Through the classification, transactions can be monitored at a higher level from the viewpoint of preventing fraud. Suspicious Transaction Reports (STR) can also be made in a way that goes unnoticeable by the account holders. Therefore, the 765 percent hike in deposits to inoperative accounts within just two months of the demonetization announcement was a signal for income tax investigation.
Inoperative accounts see a flurry of activity
Estimations made by the RBI stated that about Rs. 2,830 crores have been deposited into inoperative accounts held in 52 banks between September and October 2016. However, in the short period between November 8 and December 30, the deposits in these inoperative accounts rose to Rs. 24,220 crores. In the span of just two months after demonetization bank accounts that had been dormant for years saw deposits amounting to almost Rs. 21,400 crores. Moreover, inoperative accounts were not the only accounts that saw a flurry of activity post-demonetization. Jan Dhan accounts saw an 897 percent rise in deposits, while regular savings and current accounts saw a 294 percent increase in deposits up to December 30th last year.
As per the guidelines established by RBI, many banks have shared information with income tax investigators about unusual transactions that have taken place after a long time in inoperative bank accounts. The income tax department will follow-up by making a list of suspicious transactions after conducting thorough background and security checks. The background checks will take place to identify the accounts that were trying to evade taxes by conducting high-value transactions in hard cash (currency notes rather than cheques or credit cards) outside the banking system. Once the department finishes the background check, it will send notices to owners of the accounts that are under suspicion and take necessary actions.
Accompanying aids of demonetisation
Demonetisation not only led to heightened tax vigils but also gave way to other schemes that are being used to curb black money in India. One such accompanying scheme is the Benami Transactions (Prohibition) Amended Act, 2016. A benami transaction is one where a property is purchased in the name of someone else. According to the Act, an offender would be punished with imprisonment of up to seven years and would be charged with a fine. The government has already sent notices for 140 cases with a value of Rs. 200 crore under this Act. Black money disclosure schemes have also contributed to the fight against black money as out of Rs. 513 crore of black money unearthed in the two months after demonetisation, Rs. 110 crore was in new currency. The heightened tax vigil and various schemes accompanying demonetisation have already increased the direct tax collection from six percent in 2015-16 to 15 percent. This will further aid the government in curbing black money in the future.
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