In order to unearth black money the Unearthen Black Money Scheme was launched on 8 November 2016. Due to the launch of this scheme Rs.65,250 crore was disclosed by 6000 people within 3 months. The government also claimed tax of Rs.10,000 crore.
On November 8, 2016, the Government of India took its biggest leap to unearth black money in the history of democracy in the country. Prime Minister Narendra Modi took to the rostrum to announce that Rs.1,000 and Rs.500 currency notes will cease to be legal immediately. The demonetisation took the country by surprise and turned it on its heels. The government promised to fight against black money and they shook the entire economy by doing so. This wasn’t the first time the government has attempted to gain control of the huge amount of black money circling the market. In 1997, they launched the Voluntary Disclosure of Income Scheme (VDIS). By giving the people hoarding black money a chance to escape prosecution by disclosing their money - which will now be subject to tax - the government managed to claim Rs.10,000 crore from the scheme.
The black money scheme
In 2016, the government launched the black money scheme under the Income Tax Disclosure Scheme in another attempt for people to come forward with their undisclosed assets between June to September of 2016. By doing so, people can stand a chance to escape prosecution. As a result of the scheme, a whopping Rs.65,250 crores was disclosed during the three month window - which was opened in June and closed in September. According to Finance Minister Arun Jaitley, more than 6,000 people disclosed their black money assets which amounted to Rs.65,250 crore. Of this amount, the government yielded Rs.29,362 crores in taxes.
Tax rate in the black money scheme
The government through this scheme has given people the opportunity to come clean of their black money assets and in turn avoid prosecution. The benefit being that the names of the black money holders who disclose their black money will be kept secret. That said, considering that black money holders were stashing their money and inevitably avoiding taxes, the tax rate imposed on the disclosed black money sum is relatively higher. Black money holders who disclosed their money were subject to tax of 30% (a tax norm for those earning an income more than Rs.10 lakh as per the Income Tax Act), a surcharge of 7.5% and a penalty for avoiding tax of another 7.5%. In total, black money holders would be subject to tax of a total of 45% on the total amount disclosed. For example, if a black money holder discloses an amount of Rs.100 crore to the government, Rs.45 crore would be taxable and the remaining Rs.55 crore could be redeemed by the black money holder, with the bonus for them being that they wouldn’t need to mention the source of the income.
Changes to tax rate in the Income Tax Disclosure Scheme
One of the reasons that many didn’t come forward with their undisclosed black money was because of the high tax rate imposed on the disclosed black money. In a bid to lure more people into the Income Tax Disclosure Scheme, the government decided to soften the hammer blow with a tax rate reduction. The government reduced the tax rate from 45% to 31%, inclusive of the surcharge and the penalty.
In the last two fiscal years, the Government of India through the Income Tax Disclosure scheme has managed to retrieve more than Rs.60,000 crore from black money holders. Rs.56,378 crore has been retrieved through tax raids and search operations and Rs.16,000 crore has been retrieved from tax non-filers. The money retrieved would be used directly for the welfare of the country.