According to government officials, the Income-Tax department, in close coordination with the Enforcement Directorate, plans to kick off on January 1 a massive assessment exercise of what it alleges is “money laundered” by many during the demonetisation drive. (Representational image) According to government officials, the Income-Tax department, in close coordination with the Enforcement Directorate, plans to kick off on January 1 a massive assessment exercise of what it alleges is “money laundered” by many during the demonetisation drive. (Representational image)

The possibility of the taxman getting to wield enormous discretionary powers post-demonetisation has set off alarm bells within a section of the government itself.

A large scale swoop by the Income-Tax department in the new year may end up turning Prime Minister Narendra Modi’s “minimum government, maximum governance” mantra on its head. That’s the fear in not just this section of the government but also a large part of India Inc.

According to government officials, the Income-Tax department, in close coordination with the Enforcement Directorate, plans to kick off on January 1 a massive assessment exercise of what it alleges is “money laundered” by many during the demonetisation drive.

The I-T department will look at all “unusual” and “suspicious” deposits made into accounts, even if they are less than Rs 2,50,000. The “big data analysis” can also red flag Jan Dhan accounts, which were hardly active or inoperative, and have now suddenly shown Rs 50,000 deposits, an I-T department official, who did not wish to be named, told The Indian Express.

What this essentially means is a mammoth task of checking approximately 40 crore bank accounts, of which about half are Jan Dhan accounts. Even those who mean good for the government are concerned about harassment of people who had saved money over a period of time, but can now face the taxman’s hammer. For instance, Mukesh Butani, Non-Executive Chairman, BMR Advisors, said, “The intent (of the demonetisation drive) is very good. But the outcome could be negative. Inspector raj, harassment of taxpayers — these are the concerns.”

According to a government official, the I-T department is busy with time-barring scrutiny assessment for financial year 2013-14.

“Normally, we get time till March 31. This year, it has been advanced to December 31. After this, our attention will turn to big data analysis of moneys deposited during the demonetisation drive. Incidentally, this coincides more or less with the end of the demonetisation scheme (December 30). We will start analysing data after December 31,” said the official.

The section in the government which is concerned about the taxman’s stick is worried that housewives accumulating small portions of their spouses’ monthly incomes to build a kitty may end up being unintended victims of a spirited tax drive. Similarly, middle-income households may get saddled with I-T notices for their gradual investments in gold and jewellery. This section feels simple disclosure guidelines should be specified to enable these people avoid any harassment.

A member of the task force on direct taxes, chaired by Vijay Kelkar, said the department has huge constraints both on resources and time. “The size is so large. So, there is a need to work out rational solutions. It has to be rule-based and non-discretionary. There should be some sampling basis,” the member, who did not wish to be named, said. “Otherwise, the return on investment in such investigation may be negative.”

What has irked the government is also a strong likelihood that the entire money withdrawn in 500 and 1,000 rupee notes would return to the system. Earlier, it was anticipated that a significant chunk of up to Rs 3 lakh crore — the size of black money in the system — will not return.

“Launderers are trying to beat the system. We know how to trace them. We will trail them and catch them. Not it is easier for us,” an I-T official said. “We will do our homework. We have a risk management system and will follow standard protocols. We will share information with the Enforcement Directorate on a need-to basis. The ED can make arrests too,” the official said.

A section in the I-T department believes now that the demonetisation decision has been taken, it only makes sense to fight this battle. “A new order will emerge. It will have social implications, in the sense, some genuine taxpayers may face the heat. But that is a price to pay for building a civilised nation of honest taxpayers,” an I-T official said, adding the department did not need extra powers for the exercise.

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