Deposits worth a few lakh crore in the banks post-demonetisation are reckoned to be cash that had remained out of the banking system for long, with a sizeable chunk of this being presumably untaxed cash (SBI had estimated the unaccounted cash that could come back to the system at upwards of Rs 2.5 lakh crore, even Rs 9 lakh crore).
So when the income-tax department identified 23.5 lakh permanent account numbers (PANs) for post-note ban cash deposits inconsistent with income profiles under the Operation Clean Money (OCM) programme, the expectations of tax recovery were huge. Alas, that was not to be.
Of course, OCM did help expand the potential tax base and, though to a lesser degree, the revenue. But the I-T department has managed to send notices to only 3 lakh among the people identified for deposits disproportionate to their incomes and the amount of taxes collected through this intervention is not impressive. In assessment year 2017-18 (FY17, the demonetisation year), “a total of 2,10,077 persons (who were sent notices) filed income-tax returns and total amount of self-assessment tax was Rs 6,560.88 crore,” the department told FE, in response to a RTI filed by the paper.
When asked about the tax-compliance status of the remaining of these people, the department said that these people “have been identified for field formations for further actions like non-filer monitoring, search & surveys, prosecutions, etc. Specific data in this regard is not readily available with this office”.
The department added in the RTI reply, “Of the original 23.5 PANs, over 17 lakh filed e-returns after receiving communication… Out of these, over 14.5 lakh PANs filed their income-tax returns for last 3 assessment years — AY 2015-16,2016-17 & 2017-18. As on January 7, 2019, out of the 23.5 lakh persons, total 4.15 PANs had never filed income-tax returns.”
Just before the demonetisation, the government had launched the Voluntary Income Disclosure Scheme which ran from June 1 to September 30, 2016. It managed to mop up `12,700 crore in tax from 71,726 persons who had declared undisclosed income of `67,382 crore under the scheme.
Additionally, coinciding with demonestiation, the government had launched another income disclosure scheme namely the Pradhan Mantri Garib Kalyan Yojana which was open from December 2016 to March 31, 2017. However, the response to this scheme was lukewarm as only 21,000 persons declared `4,900 crore of undisclosed income, eventually yielding `2,451 crore in tax.
The government has attributed a sharp rise in income returns over the last two years to demonetisation as it led to identification of bank accounts and connected PANs where cash was deposited. In FY18, 6.8 crore e-returns were filed, up 28% compared with a year before. During the April-December period of the current fiscal, 6.24 crore e-returns have been filed representing a growth of 43.5% compared with the corresponding period last fiscal, thanks primarily to the goods and services tax which made income under-reporting difficult due to the new audit trails created.