The Union Cabinet has adopted amendments to the Income-Tax (IT) Act, incorporating a provision of 4-year imprisonment for those not able to explain their bank deposits. The government has also introduced a new disclosure scheme, Gareeb Kalyan Yojna, for those with unaccounted money.

So far, there has been no penal provision under the I-T law and sources said that the amendments have already been sent to the President for his assent and they are likely to be introduced in Parliament next week.

Black money holders investing in Gareeb Kalyan Yojna will have to pay a 50 per cent tax. Only 25 per cent of the total amount disclosed will be available for immediate use. "The rest of the money will be locked in for four years at zero interest and they (black money hoarders) will be issued bonds. The money will remain with the government and it will be used to budget cash-strapped social welfare schemes to uplift the poor," sources said.

The Union Cabinet, which met here late on Thursday evening, was chaired by Prime Minister Narendra Modi.

Anyone not availing Gareeb Kalyan Yojna till December 30 and gets subsequently caught will face a higher penalty of over 60 per cent. Sources said the move was aimed at helping those struggling with unaccounted income after the government demonetized high-value currency notes.

A proposal to levy a 90 per cent tax and penalty has also been incorporated in the amendment, if the assessees do not declare unaccounted cash voluntarily. After demonetization, the government had given a 50-day window beginning November 10 for either depositing Rs 500 and Rs 1,000 rupee notes in circulation or for exchanging them.

While the tax authorities had mulled levying a 200 per cent penalty for unexplained deposit above Rs 2.5 lakh between November 10 and December 30, it was felt that it may not get legal backing. It is to plug those loopholes, the Union Cabinet approved these amendments to the I-T Act.

Sources said that without these amendments, the purpose of demonetization would have failed to yield results. The tax rate, however, cannot be the same as those for honest taxpayers.

At the Cabinet meeting, the Prime Minister also asked central ministries to switch to online transactions or issue cheques to have minimum face-to-face interactions with clients. He directed them to ensure downstream payments, including from contractors and labourers, go cashless too. On Friday, the Food and Agriculture ministries held meetings to chalk out steps to shift to cashless transactions at the earliest. Ram Vilas Paswan, Union Minister of Consumer Affairs, Food & Public Distribution, told DNA that he has directed officials to achieve 100 per cent cashless transactions in 15 days.

The ministry is sending an advisory to state governments to promote cashless transactions at ration shops by installing card readers in Point of Sale (POS) machines. "Cashless transactions should be made a pre-condition in all contract works for making further payments. I will hold further review meetings next week," he said.