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DEMONETIZATION - 2016
I-T-Raids
BENAMI PROPERTY
TAX REFORMS IN INDIA
DEMONETIZATION NOTIFICATION
To curb financing of terrorism through the proceeds of Fake
Indian Currency Notes (FICN) and use of such funds for
subversive activities such as espionage, smuggling of arms,
drugs etc., into India, and for eliminating Black Money which
is a shadow of parallel economy on our real economy, it is
decided to cancel the legal tender character of the High
Denomination bank notes of Rs.500 and Rs.1000
denominations issued by RBI till now. This will take effect from
the expiry of the 8th November, 2016.
CASH VS DIGITAL
• Fake currency possible when cash is used for day to day
transactions and banking transaction is avoided.
• Informal savings are made formal by demonetization
as banks channel these for productive purposes.
• Modes of digital payments are: Unstructured
Supplementary Service Data (USSD), Aadhaar enabled
Payment System (AEPS), Unified Payments Interface
(UPI) and RuPay Cards.
“Black Money is the aggregate of incomes which are
taxable but not reported to authorities.”
• 2015: ‘The Black Money (Undisclosed Foreign Income and
Assets) and Imposition of Tax Act, 2015’ has become
functional now. Undeclared assets in foreign countries.
• Black money needs strict handling of laundering of untaxed
money; it needs to be brought into the mainstream.
• Corruption is defined as the use of public office for private
gains. Tax evasion is an illegal act of an individual or a
corporate body / business. Not collecting tax is corruption.
CONDUCTING INCOME-TAX RAIDS
• Tax noncompliance is a range of activities that are
unfavorable to a state's tax system.
• This may include tax avoidance, which is tax reduction by
legal means, and tax evasion which is the criminal non-
payment of tax liabilities.
• The use of the term 'noncompliance' is used differently by
different authors. Its most general use describes non-
compliant behaviors with respect to different institutional
rules resulting in unobserved economies.
POST DEMONETIZATION I-TAX RAIDS
• Income tax and police raids across the country have caught
everybody's attention with the authorities seizing large stashes
of new Rs. 2,000 notes.
• Given that the new banknote is being carefully rationed, the
raids have raised some serious questions about how these
people have managed to get hold of so much of the new
currency.
• Within days of the announcement of the note ban, two people
were arrested with Rs 3.5 crore in New Delhi.
RAIDS OF I-T DEPT. - SINCE DEMONETIZATION
• Over 13 crores seized in New Delhi: Income Tax officials
and Delhi Police on December 10 raided the office of a law
firm T&T in southern part of the national capital and found
over Rs. 13 crore in cash, of which Rs. 2.5 crore was in
new currency notes.
• The Crime branch team found 7 crores in old Rs 1,000
rupee notes, 3 crores in Rs. 100 denominations, and the
rest a mix of old and new notes.
Chennai: Around 166 crore currency seized. On December
10, the I- Tax department seized 24 crore rupees cash in new
notes in Chennai. This comes after a haul of cash and gold
post demonetization in the city, in which over Rs 142 crore
unaccounted assets were recovered.
Hyderabad: In Hyderabad, CBI busted a note exchange
racket by recovering 65 lakh rupees of new 2000
denomination notes from the Senior Superintendent of Post
Offices.
Challakere, Karnataka: In another development, on December
10, the Income Tax department zeroed in on 5.7 crore rupees
cash in new notes. Besides 32 kgs of Bullion (gold biscuits)
and old notes worth 90 lakh rupees was stashed inside
bathroom tiles of a Hawala operator in Challakere town in
Karnataka.
The department officials laid their hands on the stash on the
basis of searches that began against casino and bullion
traders in Hubballi and Chitradurga districts on December 9.
Vellore, Tamil Nadu: On December 9, a seizure took place
in Vellore where Rs 24 crore in cash was recovered. Rs
2,000 currency notes, kept in 12 boxes, were seized from a
car.
Poll bound states of UP and Punjab: In Punjab, fake
currency with face value of 4.15 lakh rupees was seized in
Sangrur. In Uttar Pradesh, Enforcement Directorate
reportedly found huge amount of cash in a raid at the ruling
Samajwadi Party MLC Santosh Yadav's house.
Bhilwara, Rajasthan: In yet another raid on December 10,
Income Tax Department seized Rs 7, 20, 000 in new Rs
2,000 currency notes from Bhilwara, Rajasthan.
Surat, Gujarat: In Surat, on December 9, Income Tax
officials raided different locations in the city and found Rs
1.57 crore in the form of new currency notes issued by
the government after demonetization.
Goa: The CBI and local police arrested eight persons and
confiscated Rs 1.5 crore worth of new currency in Goa on
Dec. 7.
• Raid at former BJP leader's house in West Bengal: On
December 6, former BJP leader Mahesh Sharma from
West Bengal was arrested by the special task force. Rs 33
Lakh in form of Rs 2,000 notes was confiscated from him.
• Four bank officers were accused by the police of
converting black money after Rs. 5.7 crore cash was
seized from a hawala operator.
• While there is less than adequate number of Rs. 500 and
2,000 notes, crores in new cash has been found in raids
across the country over the past few weeks.
• Demonetisation hasn’t been easy on anyone but it might prove to
be most damaging for small and medium enterprises, many of
whom transact mostly in cash.
• Data is tough to come by but anecdotal reports and assessments
made by analysts suggest that SMEs may be the hardest hit due
to their reliance on cash and their limited staying power. For them,
a loss of business even for a few months could prove to be
debilitating.
• This, in turn, could add to the bad loan woes of Indian banks
which, over the last few years, have seen non-performing assets
surge. While the focus so far has been on stress emerging from
large over-leveraged companies, the demonetization could lead to
an incremental build up of bad loans from the SME segment.
CRACKDOWN ON BLACK MONEY- CHENNAI
• I-T raid at Tamil Nadu Chief Secretary Rammohan Rao's
son's office; 33 crore in new currency seized.
• According to India Today report, during the search
operations which had commenced yesterday (21-12-2016),
around Rs 30 lakh and 5 kg gold were recovered from
Rao's residence.
• Significantly, along with the cash and bullion, 40 valuable
documents were also seized.
AXIS BANK - OVER RS 60 CRORE DEPOSITED
IN ACCOUNTS OF 20 FAKE COMPANIES
• The Income Tax department on Thursday (22/12) raided
an Axis bank branch in Noida sector 51 and reportedly
found out accounts belonging to 20 fake companies.
• According to a report, over Rs 60 crore was deposited in
those accounts. This came days after raid was conducted
at an Axis Bank branch in Delhi's Chandni Chowk.
AXIS BANK AND OTHER FAKE ACCOUNTS
• According to reports, I-T officials had said that about Rs 100
crore in old notes had been deposited in the accounts since
November 8, the date of the announcement of demonetization
by Prime Minister Narendra Modi with an objective to curb
down the flow of black money in the country.
• The officials told NDTV that these 44 fake accounts had been
created by the usage of forged documents. they said that the
investigators suspected that the money might have been routed
to buy gold.
• This is the second such raid to have been reported at a branch of
Axis Bank. Earlier last month, I-T officials had nabbed two people
with Rs 3.5 crores of cash in new currency notes while they tried
to come out of the Kashmere Gate branch in Central Delhi.
• The government had said that any deposit that amounted more
than Rs 2.5 lakh would come under the scrutiny of the Income Tax
department.
• The centre had also given the people with the outlawed and
untaxed notes one last opportunity and asked them to deposit the
amount in their accounts and pay half the taxes and penalty.
In a conversation with BloombergQuint, Arundhati Bhattacharya,
chairman of State Bank of India acknowledged that SMEs accounts
could start to turn bad if the business doesn’t normalize over the next
couple of months.
‘I am still being optimistic and saying that if we can get back into normal
mode within the next one month or so, the impact will be temporary. But,
having said that, I think that the SME sector will need some hand
holding because they don’t really have any staying power, they don’t
have deep pockets. They make a day-to-day living and their margins
are compressed in any case.’ Arundhati Bhattacharya, Chairman,
State Bank of India
CASH CRUNCH HITS RURAL INDIA HARDER
• New Delhi: The withdrawal of the high value currency notes
has hit rural India harder than the rest of the country.
• The about 25 crore accounts in the regional rural banks
received just Rs. 8000 crore in fresh currency from Nov. 10
to Nov. 30.
• This works out to be a little less than Rs. 350 per account
holder. Rural bankers persuade customers to seek only as
much cash as they immediately need.
IN THE LONG TERM, IT BENEFITS PEOPLE
• The finance Minister said that ‘Demoni’ benefits would be felt in the long run due to its good effect on the economy although it carries the pain in the transition.
• There would be better GDP, cleaner ethics and cleaner economy.
• The F M admitted that there was a shortage of cash and that was what made the parallel shift to electronic transactions so important. India will move digital. There will be increased money in the banking system, increasing abilities of banks to support the economy.
Terming demonetization a "monumental tragedy" and an "anti-
poor" measure, former F M, P Chidambaram today said. "I
don't think demonetization is a reform. It is a monumental
tragedy which is anti-poor and has put millions in misery and
hardships," he said.
All cash is not black money; Agricultural income is not subject
to taxation, income of charities is exempted, as is the income
of religious trusts. Also, the people of Northeastern states do
not have to pay income tax and they have cash in hand, he
said.
BENAMI PROPERTY
(PROPERTY WHICH LACKS THE OFFICIAL OWNER'S
NAME)
• Parliament had passed the Benami Transactions
(Prohibition) Act, and the rules and provisions of the
Benami Transactions (Prohibition) Act came into
force on November 1, 2016.
• The existing Benami Transactions (Prohibition) Act,
1988, was renamed as the "Prohibition of Benami
Property Transactions Act, 1988".
• Benami Property Transactions Act, 1988 has been
amended by the Benami Transactions (Prohibition)
Amendment Act, 2016 (BTP Amendment Act).
• The rules and all the provisions of the BTP Amendment Act
shall come into force on 1st November, 2016.
• After coming into effect of the BTP Amendment Act, the
existing Benami Transactions (Prohibition) Act, 1988 shall
be renamed as Prohibition of Benami Property
Transactions Act, 1988 (PBPT Act).
Benami (literally means ‘without a name’) transactions:
› Any property transaction, where the property is held by a
person but the consideration for the same has been
provided by another person; and the property is held for the
future benefit of the person paid the consideration.
› A property transaction carried out in a fictitious name
› A transaction where owner of the property is not aware of
or denies ownership
A transaction where the person providing the
consideration is not traceable or fictitious
PROHIBITION OF BENAMI PROPERTY
TRANSACTIONS ACT, 1988
• The PBPT Act defines benami transactions, prohibits
them and further provides that violation of the PBPT
Act is punishable with imprisonment and fine.
• The PBPT Act prohibits recovery of the property held
benami from benamidar by the real owner.
• Properties held benami are liable for confiscation by
the Government without payment of compensation.
PROVISION OF AN APPELLATE MECHANISM
• An appellate mechanism has been provided under the PBPT Act
in the form of Adjudicating Authority and Appellate Tribunal. The
Adjudicating Authority referred to in section 6(1) of the
Prevention of Money Laundering Act, 2002 (PMLA) and
• the Appellate Tribunal referred to in section 25 of the PMLA
have been notified as the Adjudicating Authority and Appellate
Tribunal, respectively, for the purposes of the PBPT Act.
• A Joint / Additional Commissioner of Income-tax, an
Assistant / Deputy Commissioner of Income-tax and a
Tax Recovery Officer in each Pr. CCIT Region have
been notified to perform the functions and exercise the
powers of the Approving Authority, Initiating Officer and
Administrator, respectively under the PBPT Act.
• All the notifications have been uploaded on the website
of the Department at www.incometaxindia.gov.in.
However, as per the regulation the following transactions are excluded
from the definition of Benami transactions
› A property acquired out of known sources of income of the Hindu
Undivided Family (HUF) and held by the HUF
› Properties held by a person in fiduciary capacity (where a fiduciary is
responsible for managing the assets of another person, or a group of
people)
› Properties acquired from known sources in the name of spouse and
child
› Properties acquired from known sources jointly with brother and sister
or any lineal ascendant or descendant
PENALTY OF HOLDING A BENAMI PROPERTY
• The amendment to the Benami Transaction (Prohibition)
Amendment Act is aimed at restricting generation and use of
unaccounted money. Real estate is considered as one of the
main avenues for investment of unaccounted money in India.
• The Act lays down stringent measures to discourage Benami
transactions. The re- transfer of the Benami Property is
prohibited under the act and there is defined punishment for
commencing any Benami Transaction after the date of
commencement of the Bill.
WHAT IS MONEY LAUNDERING?
• Money laundering, loosely defined, is the transactional
processing or moving of illicitly gained funds (such as currency,
cheques, electronic transfers or similar equivalents) towards
disguising its source, nature, ownership or intended destination
and/or beneficiaries.
• The desired outcome of this process is “clean” money that can
be legally accessed or distributed via legitimate financial
channels and credible institutions.
Money laundering has fairly benign origins in the hawala and hundi
systems of South Asia, which were informal financial systems which
allowed people to execute financial transactions in confidence and
secrecy.
These systems were perfectly legitimate to begin with, and merely
reflected institutional underdevelopment or unfamiliarity or lack of
confidence in the formal banking system.
However, these systems soon attracted criminal organizations,
which began to use them along with other means in order to launder
money to remove the taint of illegality. In the past century, money
laundering has become an international problem.
WHAT IS HAWALA?
• In India money laundering is popularly known as Hawala
transactions. It gained popularity during early 90’s when many of
the politicians were caught in its net. Hawala is an alternative or
parallel remittance system.
• The Hawala Mechanism facilitated the conversion of money from
black into white. "Hawala" is an Arabic word meaning the transfer
of money or information between two persons using a third
person.
• The system dates to the Arabic traders as a means of avoiding
robbery. It predates western banking by several centuries.
WHO IS GUILTY OF MONEY LAUNDERING?
• Section 3 of Prevention of Money Laundering
Act, 2002 – “whosoever directly or indirectly
attempts to indulge or knowingly assists or
knowingly is a party or is actually involved in any
process or activity connected with the proceeds
of crime and projecting it as untainted property
shall be guilty of offence of money-laundering.