In a step towards making India a cashless economy and curbing black money, the Supreme Court-constituted special investigation team (SIT) has recommended a ban on cash transactions above ₹ 3 lakh.

In a report made public on Thursday, the SIT also suggested capping the cash holdings of companies and individuals at ₹ 15 lakh.

If accepted by the government, both these measures could check cash transactions, ensure a paper trail for every high-value transaction and prevent tax evasion.

High-value transactions in cash are a common feature, especially in the real estate sector where buyers try to get away with lower stamp duty.

This is the fifth report by the SIT, which was constituted in 2014 under former Supreme Court judge M.B. Shah to look into ways to curb generation of black money—unaccounted, untaxed wealth—and bring back funds stashed away overseas.

Curbing black money and returning money held overseas by dishonest Indians was a major electoral promise of the National Democratic Alliance which, since coming to power in May 2014, has enacted the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act to catch those who have undisclosed foreign assets.

For curbing domestic black money, it is also in the process of enacting the Benami Transactions (Prohibition) Amendment Bill, which the government hopes will get passed in the upcoming monsoon session.

In its latest report, SIT recommended that an Act be framed to declare cash transactions above ₹ 3 lakh illegal. It pointed out that a large amount of unaccounted wealth is stored and used in the form of cash.

“Having considered the provisions which exist in this regard in various countries and also having considered various reports and observations of courts regarding cash transactions, the SIT felt that there is a need to put an upper limit to cash transactions," the report said.

“Thus, the SIT has recommended that there should be a total ban on cash transactions above ₹ 3,00,000 and an Act be framed to declare such transactions as illegal and punishable under law," it added.

The report also highlighted that unaccounted wealth is being held in cash, as confirmed by huge cash recoveries in a number of enforcement actions by law enforcement agencies from time to time.

“The above limit of cash transaction can only succeed if there is a limitation on cash holding, as suggested in its previous reports. SIT has suggested an upper limit of ₹ 15 lakh on cash holding," it said, adding that permission from the income-tax department would be necessary for holding more than the permissible amount.

In its earlier reports, SIT had sought a tightening of rules governing participatory notes—instruments through which some foreign investors invest in Indian markets and which could be used to launder money; Indian authorities suspect that some of the money coming to India through participatory notes may be black money stashed overseas returning in the garb of foreign capital.

“Technology for the taxman is a good facilitator, and therefore for years to come and in every passing day for the taxman to detect violation is going to be relatively easier," finance minister Arun Jaitley said at an event organized by the Federation of Indian Chambers of Commerce and Industry on Thursday.

“At every stage, a business transaction is going to be recorded, and therefore income generated out of that has to be accounted. So not only generation (of black money) is going to be more difficult, the expenditure is also going to be difficult," he added.

“So the requirement of using a PAN card for transactions beyond a certain limit—gradually its application will increase. Therefore, it’s not going to be more profitable activity for anyone to indefinitely continue to have concealed assets," he added.

Over the last few years, the tax department has taken a number of steps to ensure an audit trail of transactions. It made the quoting of Permanent Account Number (PAN) mandatory for all transactions above ₹ 2 lakh, irrespective of the mode of payment. It has also stipulated that cash payments for hotel bills exceeding ₹ 50,000 and purchase of cash/prepaid instruments aggregating to more than ₹ 50,000 a year will have to quote PAN. It is also seeding Aadhaar with the PAN number to weed out multiple PANs.

It is aggressively tracking high-value transactions such as credit card payments, cash deposits in banks, purchase of tax-saving instruments using PAN and checking if these individuals were filing tax returns every year.

“Slowly and gradually, the economy is getting digitized. It is a good step for ultimately moving towards a cashless economy. Electronic transactions ensure a clear money trail and make it very difficult for tax evaders," said D.K. Joshi, chief economist at Crisil Ratings. “It is a good idea to start with bigger transactions and extend it to smaller transactions gradually once you give a facility to everyone to transact through electronic means," he said.

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