Curbing the Black Economy

The Bharatiya Janata Party-led government, which promised to tackle the generation of black incomes and to even bring black money back to India, has over the past two years made many announcements that have little bite, like double taxation agreements, among others. Without strong deterrence, curbing the black economy is difficult. That is why widening the direct tax base from 1% of the population, evident from the recently released tax data, has not been feasible.

From the ramparts of the Red Fort, Prime Minister Narendra Modi, in his address to the nation on the occasion of the 70th year of independence, promised to ease the rules for middle-class taxpayers and stop the harassment of honest taxpayers. He said that they are “more troubled with income tax officials than the police.” He mentioned reforms like interaction via email and quicker refunds. In contrast, two weeks earlier, the Prime Minister had exhorted those generating black incomes to come clean so as to sleep in peace. The Income Tax Department has announced that this year the number of raids has increased compared to last year.

Since July, there has been a flurry of announcements about tackling the black economy. For instance, it was announced that seven lakh letters will be issued seeking clarifications from those who carried out high-value transactions in which Permanent Account Number (PAN) was not quoted. These transactions could be deposits of more than ₹10 lakh in banks or transfer of immovable property valued at more than ₹30 lakh. The Income Tax Department claims to have information about 90 lakh such transactions which took place between 2009 and 2016. The Chairman of the Central Board of Direct Taxes (CBDT), Atulesh Jindal, mentioned that there are one lakh cases where the transaction value is over ₹1 crore.