DEMONETISATION – THE SOCIAL IMPACT

DEMONETISATION SOCIAL IMPACT

Post November 8, the country has been debating on whether it helps to have a cashless economy or not. With that, there have been discussions going on about how exactly to convert the economy into a digital one.

Somewhere in the background, this move towards turning into a cashless economy has shown its effect on the social set up too. First, Demonetisation has brought the trafficking of women and girls for sex work to a stop. It has been estimated that this has been a Rs 20 trillion industry.

The process of trafficking of women is usually completed by November, after which trafficked women and girls are transported to various parts of the country to be sold to brothels, placement agencies and as child brides. Post demonetisation and the withdrawal of the Rs500 and Rs1000 currency notes, this trade, is said to have suffered a significant blow.

Typically, the sex trafficking is carried on from Guwahati in Assam, Jharkhand in the North and Chennai, Bangalore and Hyderabad in the south. There hasn’t been any record of even one girl being trafficked in the past one month. Transactions related to this trade were carried out in cash. With the supply of notes in the economy reduced, people were suddenly left with no liquidity to pay to the middlemen.

Sex trafficking is one of India’s biggest organized crime rackets. The “cost” of a woman or girl is usually pegged at Rs2.5 lakh. This includes the cost of transporting her, paying off local politicians, authorities and police officials and finally, the cost of grooming her.

Actual costs, however, are as low as Rs 20,000. The remaining Rs 2.3 lakh is taken by the trafficker or the middleman. A study by Global March against Child Labour (a network of trade unions, teachers, and civil society organizations) has estimated that the annual figure in India for this kind of trafficking is about Rs 18.6 trillion.

Cash payments dominate the category of prostitution too. There have been many media reports of sex service workers asking clients for digital payments – something that could prove to both awkward and arduous for people who indulge in these services.

One of the major impacts of the demonetisation process has also been felt in the Narcotics Trade. This has been another huge section of trade, and most marketing takes place through Afghanistan and other ports. Black money rules this business.

In Maharashtra and Himachal, drug trade came to a virtual standstill after the government announced demonetisation. Drug peddlers found it difficult to sell their stock after high-value currency went missing from the economy. Even small transactions were affected – with most of the drug players having gone into hiding till the market gets into revival mode.

Supply of narcotics from Jammu & Kashmir and Himachal Pradesh into Maharashtra and other states has also gone down. The Narcotics Bureau has found that while the drug detection rate might be the same as before demonetisation, the quantity of drugs seized from the peddlers now is much less than earlier.

With all this, is also the effect on one of the key objectives of the demonetisation process namely, terrorism. The idea was to make fake notes flowing in from Pakistan, mostly in 500 and 1000 rupee denominations, useless. In doing so, black money, a significant source of terrorist funding, would dry up.

Behind the overwhelming debates, discussions and criticism of the demonetisation process that we have been seeing in the past one month or so, there have been some silent positive social effects too.  For all other detailed processes and policies on the eco-political impacts, do keep in touch with our posts on our website www.nrilegalservices.com

Demonetising _ The changing Taxation scenario in India

changing-taxation-scenario-in-india

In the past one month or so, there has been a wave of changes introduced due to the demonetisation process carried out by the Modi government. Besides a general ban on the old 500 and 1000 notes, in the recent days, there were many announcements made regarding gold and related schemes.

Somewhere in all this, there have been indications of measures being taken for streamlining the Taxation system in the country. Some of the proposed amendments in the Income Tax Act are:

  • Individuals with unaccounted cash or deposits of cancelled Rs 500 and Rs 1,000 notes will pay 50% tax
  • Out of the amount declared, a quarter would be locked up for four years in interest free deposits, leaving such declarant with only 25% of funds for immediate use.
  • The law also declares that there would be taxes imposed in the following manner:
    • Up to 60% (tax + penalty) – if it’s admitted and return is filed
    • 90% (tax + penalty) on cash seized in searches.
  • All individuals who declare their black money will have to mandatorily deposit 25% of the amount disclosed in anti-poverty scheme; that too, in schemes without interest and a four-year lock-in period.
  • Those who choose to declare their ill-gotten wealth stashed till now under the Pradhan Mantri Garibi Kalyan Yojana 2016 –
  • Will have to pay a tax at the rate of 30% of the undisclosed income.
  • And additional 10% penalty will be levied on the undisclosed income and surcharge called PMGK Cess at the rate of 33% of tax (33% of 30%).
  • All such declarants will have to deposit 25% of the undisclosed income in a scheme to be notified by the government in consultation with the Reserve Bank of India (RBI).
  • If some individual is caught holding on to undisclosed cash, the existing provisions of the Income Tax law would be amended to provide for a flat 60% tax plus a surcharge of 25% of tax (15%), which will amount a levy of 75%.

Or

  • The declarant will have to pay a tax of 60 per cent and an additional surcharge of 25 per cent of the tax (i.e. 15 per cent of such income), resulting in a total tax component of 75 per cent.
  • Besides, if the assessing officer decides he can charge a 10% penalty in addition to the 75% tax.
  • Service tax will not be levied on tickets booked through the IRCTC website from 23 November to 31 December – Rs. 20 would be levied as service tax on Sleeper and Rs. 40 on AC classes for booking tickets through IRCTC.
  • On November 23, the government also asked banks towaive the merchant discount rate (MDR) or transaction fee charged on debit card payments until 31 December, 2016..
  • In moves to strengthen and support the rural sector, the government also decided that it will provide Rs21,000 crore to district central cooperative banks (DCCBs) through NABARD to provide loans to farmers.
  • RBI has provided anadditional 60 days for repayment of housing, car, farm and other loans worth up to Rs. 1 crore.
  • The money from the scheme would be used for projects in irrigation, housing, toilets, infrastructure, primary education, primary health and livelihood so that there is justice and equality.

In the past few weeks, the government has been declaring various steps to flush out the economy of black money and improve the structure of the financial system. In the context of the steps being taken, there are frequent announcements made. While we try and bring the latest to you on a daily basis, sometimes there could be a variation in the data available. We suggest that you do verify all facts from the official RBI website too www.rbi.org.in , for all relevant information.

All That Glitters, Will be Monitored – Gold Deposit Norms

gold-deposit-norms

In the plethora of guidelines being issued under the Demonetisation wave, the Government has now declared the following regarding the Gold deposit that individuals can have:

  • All jewellery that has been bought with declared wealth or income will not be taxed
  • Ancestral jewellery will also be spared taxation
  • Married women have been allowed to possess up to 500g of gold – and not worry about it being seized
  • Single women will be allowed 250g and men only up to 100g
  • All gold deposits that are over 500g and cannot be explained by known sources of income will attract heavy income tax under the gold monetisation scheme
  • The government aims to discourage people from converting black into white money, under the scheme
  • For people who have been paying wealth tax, only gold jewellery and ornaments which are more than the declared gross weight will be seized – the ceilings can be adjusted by the tax officers depending on the particular community or status of the family
  • The government had of course declared that there would be no relief on the know-your-customer (KYC) guidelines or the other reporting requirements of banks.
  • The government is hoping to reduce India’s gold imports with the help of its two schemes launched – the Gold Monetisation scheme and the Sovereign Gold Bond scheme
    • Under the Gold Monetisation Scheme, individuals will be able to earn some interest on the god lying in their bank lockers – this would be like a gold savings account which will earn interest for the gold deposited in it.
    • Gold can be deposited in any form-bars, coins or jewellery
    • The earnings therein would be exempt from capital gains tax, wealth tax or income tax
    • No capital gains tax on the earning that would accrue to an individual from the increased return on the gold you have deposited
    • By doing all this the government also hopes to convert gold into a productive asset
    • Gold holdings in India are estimated at more than 20,000 tonnes but since they are not commercially deployed, India still imports 800-1,000 tonnes of gold a year.
    • The second scheme – Sovereign Gold Bond scheme – is formulated to “enable individuals to benefit from the appreciation in gold prices without actually physically holding the gold”, according to RBI.
    • The government is offering an opportunity to individuals to buy Gold Bonds which would be taken as collaterals for taking loans.
    • These bonds can also be sold or traded on stock exchanges

Amongst other things, the new rules and highlights of the demonetisation drive listed by the RBI as of 1 December are:

  • From 3 December, old Rs500 notes are not allowed to be usedfor even purchase of petrol, diesel and gas.
  • The RBI on Wednesday announced that it will place cashwithdrawal limits on Jan Dhan accounts also, as a precautionary measure.
  • The central bank said that on accounts which are fully compliant of the know your customer (KYC) norms—the monthly withdrawal limit has been set at Rs10,000
  • In an effort to curb the hoarding of valid currency notes and increasing its circulation, theRBI in its latest notification allowed the withdrawal of the deposited sum in Rs2, 000 and Rs 500 notes, irrespective of the existing cash withdrawal limits.
  • TheRBI has also imposed stiff conditions for withdrawal of up to Rs 2.5 lakh in cash from bank accounts for weddings – now the money can be withdrawn only from the credit balance as on 8 November, the day demonetisation was announced.
  • Given the rumours of fraudulent deposits happening in various accounts, the government hasalso warned people against depositing their unaccounted old currency in someone else’s bank account.
  • All such transactions – the ‘Benami’ transactions, so to say – would be penalised and incur jail terms for a minimum of seven.

Unaccounted deposits could face 50% tax, 4 Years lock-in period

demonetisation

No less than 50 percent tax could be levied on inexplicable bank deposits made when using banned currency notes around December 30, 2016 including a four-year lock-in period for One half of the remaining amount underneath the amendments to tax law the government plans to usher in Parliament shortly. However, a greater 90 percent tax and penalty might be enforced if people don’t declare the unaccounted cash under their own accord. Cash deposits made while using old currency of Rs.500 and Rs.1,000 notes over a threshold which can be declared to Tax government bodies may attract 50% tax, as reported by the amendment towards the Tax Act authorized by the Cabinet yesterday.

One half of the remaining deposits, or 25 % from the original deposit, won’t be allowed to be withdrawn for 4 years, sources stated. In a situation where such deposits aren’t declared and therefore are detected by tax government bodies, as many as 90 % tax and penalty might be imposed, they stated. The government had given a 50-day window beginning from November 10 either to deposit the now invalid currency in circulation or exchange it for brand new notes.

As the exchange, which was restricted to a maximum of Rs 2,000 per person, continues to be withdrawn, all old notes with no ceiling could be deposited in accounts. This, sources stated, had brought some boost in bank deposits, specifically in zero-balance Jan Dhan accounts that have grown by over Rs 21,000 crore in only two days, raising suspicion that these accounts might have been accustomed to launder black money. As the tax government bodies had spoken of levying an optimum rate of tax and 200 percent penalty on the top from it for just about any inexplicable deposit above Rs. 2.5 lakh between November 10 and December 30, it had been felt that this type of move might not have legal backing.

To plug individuals loopholes, the cabinet is considered to possess yesterday approved amending the Tax Act with the addition of a clause within the sections to maintain the tax with an inexplicable earnings throughout the window, sources stated. The federal government intends to bring the amendment for approval in early next week after getting the President’s nod. Sources stated demonetization would be a major key to uproot black money and corruption nevertheless its purpose could have been defeated when the ill-become wealth was deposited through benami deposits. And taxing them was a method to punish dishonest people. The tax rate, however, can’t be just like for honest tax payers. Additionally, it couldn’t function as the 45 percent tax and penalty billed on hereto undisclosed wealth introduced to books utilizing a one-time compliance window underneath the Earnings Disclosure Plan (IDS) that ended on September 30.

Sources stated because the black money holders didn’t make use of the government offer to declare their unaccounted wealth, they ought to pay a greater rate of tax now and curbs put on its usage. The federal government can also be contemplating on developing a bond where the 25 percent “lock in” money could be parked and could be withdrawn after 4 years through the depositor. From the additional taxes on inexplicable and undisclosed deposits, the federal government can create a fund to construct rural infrastructure.

Demonetisation Do’s and Don’ts: Govt Announces Operational Measures

demonetisation-dos-and-donts

After about fifteen days of the Demonetisation process, the Government finally announced some measures on an operational level so that there is clarity about the usage of the old versus new notes – as also the exchange of the notes. Significantly, the following are noteworthy points:

  • There will be no over the counter exchange of the old notes of Rs 500 and Rs 1000 now, post midnight November 24, 2016.
  • From November 25, you can only deposit the old notes in their accounts and then withdraw new currency through ATMs or cheques at banks.
  • The government intends encouraging people who currently do not have accounts to open them and deposit the abolished notes.
  • There will still be a limit of Rs 24000 per week withdrawal per bank account
  • ATMs can be used to draw up to Rs. 2,500 a day per card.
  • The RBI has doubled the limit on digital transactions through e-wallets like Paytm to Rs. 20,000 per month.
  • Meanwhile, in Nepal people are already having problems exchanging Indian currency old notes. Now, the government has declared that the new Indian notes stand banned in the country
  • The government of Nepal will wait for a declaration by the RBI under the FEMA Act. This move has been introduced because Nepal claims its incompetence to judge about counterfeit currency
  • Certain exemptions granted for a further period till December 16, 2016, with the following guidelines:
  • All payments to be acceptable for the exempted categories only in old Rs 500 notes
  • Payments of up to Rs 2000 can be done per student in all Central Government, State Government, Municipality and local body schools too
  • Payment of fees in Central and State colleges
  • Pre Paid mobiles can be paid up to a limit of Rs 500 per top up
  • While one can buy goods from Consumer Cooperative Stores, the limit would be Rs 5000 at a time only
  • In Utilities, only water and electricity are allowed to be paid with these notes
  • The toll free arrangements on roads were extended till December 2, 2016. For the next ten days or so till December 15, old notes can be used to make payments
  • For Foreign citizens, the rule is that they will be permitted to exchange foreign currency up to Rs 5000 per week. However, now entries will be made in their passports. The RBI proposes to issue further guidelines regarding this.

Notifications and updates are coming in daily. While we are trying our best to bring you the most accurate and updated Information on this subject it is a possibility that by the time we relay the information it might have been changed. Please verify from the official site of RBI before taking any action (https://www.rbi.org.in/).