Demonetisation effects on GST

demonetisation effects on GST

GST Caught Between Political Tussles – Fallout of Demonetisation and the wave thereafter!

Would Prime Minister Modi have thought that his ‘surgical strike’ on black money have an impact on the other proposed wonder drug of the economy – the GST? Well it looks like it is creating an impact on those lines. The tsunami that the demonetisation process has brought has led to feuds between the government and the opposition, besides generating a mixture of responses from the public and media. This animosity on the political front has caused the GST drive to suffer a setback.

And while on Taxes, the country’s finance minister has hinted now that the tax rates might be lowered –the assumption being that demonetisation would bring in higher tax revenues from unaccounted wealth. Considering the fact that digitisation would push a greater number of people to be in the tax net, it is hoped that in the future the taxation levels would end up being much higher. Consequently, tax rates could be made more reasonable for both direct as well as indirect taxes.

For now, people are hoping that the government might bring in a number of concessions for the taxpayer – be it individuals or the corporate sector. This would ease out the pain felt during demonetisation. The steps could vary from tax slab revision to reduction in corporate taxes to tax exemptions and rebates. All this is expected to target farmers, small traders, small and medium businesses and the youth. Over the past one month or so, the government has in any case been giving incentives to encourage digital payments. The currency situation is expected to improve by the third week of December.

Meanwhile, more than a month after demonetisation, these are some of the noticeable trends in the Indian economy:

  • Projected GDP growth for this fiscal year is 7% – this is as per the estimate given by the Asian Development Bank.
  • The figure for the next fiscal year is about 7.8% – as per ADB, the impact of demonetisation is temporary
  • Some of the incentives for cashless transactions were :
  1. 5% discount by Railways for online payment on facilities like e catering and booking retiring rooms
  2. 5 % discount by the Railways on season tickets that are purchased digitally January 1, 2017 onwards
  3. The banks had released about Rs. 4 trillion back into the system till the first week of December
  4. Banks had got about Rs. 12.4 trillion in deposits till mid December , since Demonetisation
  5. Amongst other aspects, the IMF survey on Financial Access pointed out that the number of ATMs per 100,000 adults is 19.71.
  • As of midnight December 15, the usage of the old 500 notes would stop completely – beyond this, the notes would only be deposited in the banks till December 30 and be exchanged at the RBI till March 31, 2017 (under special circumstances).
  • Till midnight December 15, the old 500 notes can be used in the following places:
  1. Government hospitals and pharmacies
  2. Consumer Cooperative stores
  3. Government Agricultural Research centres and related organisations
  4. Government milk booths
  5. Payments at all pharmacies
  6. Purchase of LPG cylinders
  7. Toll payments
  8. Fees, charges taxes, penalties towards government organisations
  9. Utility charges like electricity and water
  10. Court fees, Government school fees
  • The RBI updates its notifications and frequently asked question list (FAQs) for people to understand the basics of note deposit and exchange – it lays down certain specifications for NRIs also.
  • Although we try to bring you all the latest information, there are frequent changes and declarations made by the government. We would advice all our readers to keep checking the RBI official site (www.rbi.org.in) for authentication of all facts.

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.