The Government scrapped 500 and 1000 rupee notes, effective, November 8th 2016. The aim of this move, was to stop corruption and terrorism in India, fueled by black money. You have some black money lying at home, in old 500 and 1000 rupee notes. Is it time to declare this unaccounted money and come clean? The tax department will impose a severe penalty, if you are caught with black money. If you have unaccounted deposits more than INR 2.5 Lakhs, between November 10th and December 30th 2016 in your bank account, the tax department was considering charging you, 30% tax + 200% penalty. This is a huge penalty.
Now, would you declare black money and pay such a huge penalty…Highly unlikely….You would rather hide your money. Want to know more on tax planning? Just leave a missed call on IndianMoney.com financial education helpline 02261816111 or just post a request on IndianMoney.com website. IndianMoney.com offers Free, Unbiased and on-call financial advice on Insurance, Mutual Funds, Real Estate, Loans, Bank Accounts and capital markets.
Let’s say you want to deposit your black money, voluntarily at the bank. The tax department would charge you a minimum 50% tax, on any unexplained bank deposits, which you have made using old 500 and 1000 rupee notes. This is up to December 30th 2016. You would also have a 4 year lock-in period, for half the remaining amount.
You deposit unaccounted cash at the bank, in old 500 and 1000 rupee notes. You admit this is unaccounted cash and want to voluntarily pay tax on this amount.
You pay 50% tax
(30% tax + 20% penalty)
Then….25% of the remaining amount is locked in zero interest deposits for 4 years (You cannot touch this money for 4 years). You can use the remaining 25%, as you wish.
How does the Government gain from this? Government is able to collect tax. This money can be used for the development of the country. You have to deposit 25% of the amount, in interest free deposits, for 4 years. The Government gets to use this money, without paying you any interest.
Let’s say, you have not declared your black money (unaccounted money) and have deposited the old 500 and 1000 rupee notes at the bank. You have deposited these notes with the bank, hoping not to get caught. What happens if the tax department catches your accounted money? Well…the tax department will charge you 90% tax + penalty. This is a very hefty price to pay.
Today, just a few weeks after the Government scrapped 500 and 1000 rupee notes, Jan Dhan bank accounts are filled with more than INR 27,000 crores. Most of the money was deposited in these accounts, in the last 2 weeks. Jan Dhan accounts were launched to help poor citizens, have their own bank accounts. How can poor citizens deposit so much money in Jan Dhan accounts?
The Government suspects the Jan Dhan accounts, are used to convert black money to white, by unscrupulous people. By giving citizens hoarding black money a way to pay taxes and declare the unaccounted income, the poor in India, can be saved from exploitation. The poor won’t be used to convert black money to white, using their Jan Dhan accounts, in exchange for some money.
Finally…Citizens hoarding black money, could burn/destroy old 500 and 1000 rupee notes. The Government does not want citizens to destroy these rupee notes. Paying a tax and declaring black money, could save these old 500 and 1000 rupee notes. Be Wise, Get Rich.
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