Operation Clean Money: Five lakh Indian tax payers under taxman's surveillance

Prime Minister Narendra Modi's government followed up on its offensive against black money with its "Operation Clean Money" launched on January 31, 2017, seeking explanation for cash deposits made by 18 lakh taxpayers into bank accounts between November 9 and December 30, 2016. Responses were received for 7.41 lakh accounts from 5.27 lakh taxpayers by February 12. The second phase of "Operation Clean Money" will now be aimed at 4.84 lakh taxpayers who have not responded to the taxman's notice and are under surveillance.

Read: I-tax department confirms status on bank deposits up to Rs 2.5 lakh during demonetisation

"Income Tax Department is keeping a vigil on the PAN holders who have still not registered on the e-filing portal or who have not yet submitted their online response," the government had said last week. But the Central Board of Direct Taxes (CBDT) — the apex policy-making body of the department — clarified on Tuesday that taxpayers won't be harassed, though wilful defaulters won't be spared.

""In case, there is information or apprehension/suspicion that a particular bank account(s) has been misused for money laundering, tax evasion, entry operations in shell companies, the monetary cut-off or cash balance based cut off prescribed in clauses above requiring no-verification, shall not be applicable," the CBDT said.

The exercise of identifying of those who are yet to respond to the explanation and sending them messages could pay off in the form of more voluntary disclosures under the Pradhan Mantri Gramin Kalyan Yojna (PMGKY) that ends on March 31.

"It is possible that some of the accounts identified by the IT department voluntarily disclose their undisclosed income under the government's ongoing Pradhan Mantri Garib Kalyan Yojana (PMGKY) scheme, which gets over on March 31, 2017, and pay the requisite tax and penalty," Kotak Institutional Equities said in a note.

If that happens, it could boost the government's overall tax collections even as the country gets ready to a new indirect tax regime, the Goods and Services Tax, hopefully from July 1.

Under the PMGKY scheme, undisclosed income will be subject to tax at 30 percent of the undisclosed income, surcharge at 33 percent of the tax and penalty at 10 percent of the undisclosed income.

In addition, 25 percent of the undisclosed income will be deposited in the Pradhan Mantri Garib Kalyan Deposit Scheme, 2016. The deposits won't fetch interest and will be locked-in for four years.

During his budget speech on February 1, Union Finance Minister Arun Jaitley had said India is largely a non tax-compliant society, citing statistics on vehicle purchases and trips abroad by Indians on the one side, and the income declared by them.

In the financial year 2015-16, 3.7 crore Indians filed I-T returns. Of them, only 52 lakh individuals reported an annual taxable income between Rs 5 to 10 lakh while 24 lakh individuals reported an annual taxable income of above Rs 10 lakh. Only 1.72 lakh individuals declared the annual taxable income of more than Rs 50 lakh.

CBDT Chairman Sushil Chandra  Chandra said a few days ago that out of a total of 15 lakh companies in India, "over 50 per cent of them are not filing income-tax returns."