india

Updated: Jan 18, 2018 09:26 IST

Retailers will soon have to report purchases above Rs 6 lakh to the Financial Intelligence Unit (FIU), said a government official working on the proposal targeted at preventing money laundering.

This limit will mainly be applicable on jewellery and luxury goods.

“Globally, in most countries, the limit for reporting such transactions is set at $10,000,” added the government official who spoke on condition of anonymity. “Discussions are on to decide the limit, with consensus veering around Rs6 lakh.”

Apart from helping government agencies such as the Enforcement Directorate detect money laundering (when this information is used along with other information), these reports could also help the income-tax department identify individuals whose purchases are disproportionate to their known sources of income.

The National Democratic Alliance has announced several measures to crack down on black money and money laundering, including deregistering shell companies that exist solely to facilitate such transactions, and strengthening the Benami Transactions Act.

The government has barred cash transactions above Rs2 lakh, and any transaction of Rs50,000 or above has to be supported with the PAN number of the buyer, although many sellers get around this.

The government, in a notification issued on August 23, 2017, mandated gems and jewellery dealers to report their transactions, but the notification was withdrawn in October because no threshold was set and jewellery dealers complained of inconvenience.

Under the Prevention of Money Laundering Act, banks and financial institutions are required to maintain records of all transactions over Rs10 lakh, all cross-border wire transfers of more than Rs5 lakh.

The law also requires all purchase and sale of immovable property of Rs50 lakh or more to be flagged.

Post-demonetisation banks are also required to report cash deposits over Rs50,000.

“Though cash transactions are banned above Rs2 lakh, recent data shows that accountants are being used to creatively flow black money through the legal banking channels. A threshold for reporting purchases will help us track cases of disproportionate assets, corruption money , and frauds,” an official in the Enforcement Directorate (ED) said on condition of anonymity.

A recent study by ED showed that 48% black money is laundered through legitimate financial channels using shell companies. “So because the transaction is not in cash does not mean it does not require tracking,” added the ED official.

“There are already reporting mandates for transactions; this new threshold will only be an irritant to merchants as their filing requirements will increase. As long as political funding is in cash and there is a systemic problem of bribes, black money cannot be rooted out through these cosmetic measures,” said MM Joshi, former chairman of the central board of direct taxes.