New Delhi: A minimum of 50 percent tax may be levied on unexplained bank deposits made using the banned currency notes up to 30 December along with a 4-year lock in period for half of the remaining amount under the amendments to tax law the government plans to bring in parliament shortly.
However, a higher 90 percent tax and penalty could be imposed if assessees do not declare the unaccounted cash voluntarily.
Cash deposits made using the scrapped Rs 500 and Rs 1,000 notes above a threshold that are declared to Income Tax authorities may attract 50 percent tax, as per the amendment to the Income Tax Act approved by the Cabinet last night.
Half of remaining deposits, or 25 percent of the original deposit, will not be allowed to be withdrawn for four years, top sources said.
In case such deposits are not declared and are detected by tax authorities, a total of 90 percent tax and penalty would be charged, they said.
The government had after the shock demonetisation, given a 50-day window beginning 10 November for either depositing the Rs 500 and Rs 1,000 notes in circulation or exchanging them for new currency.
While the exchange, which was limited to a maximum of Rs 2,000 per person, has been withdrawn, all old notes without any ceiling can be deposited in bank accounts.
This, sources said, had led to a surge in bank deposits, particularly in zero-balance Jan Dhan accounts that swelled by over Rs 21,000 crore in just two weeks, raising suspicion that these accounts may have been used to launder black money.
While the tax authorities had talked of levying a peak rate of tax and 200 percent penalty on top of it for any unexplained deposit above Rs 2.5 lakh during 10 November to 30 December period, it was felt that such a move may not have legal backing.
To plug those loopholes, the cabinet is believed to have on Thursday approved amending the Income Tax Act by adding a clause in one of the sections to provide for the tax on an unexplained income during the window, sources said.
The government plans to bring the amendment for approval during the ongoing winter session of Parliament.
Sources said the demonetisation was a big step to uproot black money and corruption but its very purpose would have been defeated if the ill-gotten wealth made way into the system through benami deposits.
And taxing them was a way to punish dishonest people.
The tax rate however cannot be the same as charged to honest tax payers. It also could not be the 45 percent tax and penalty charged on hereto undisclosed wealth brought to books using a one-time compliance window under the Income Disclosure Scheme (IDS) that ended on 30 September.
Sources said since the black money holder did not utilise the government offer to declare his ill-gotten wealth, he should pay a higher rate of tax now and curbs placed on use of that money.