During their electoral campaign in 2014, Narendra Modi and the Bharatiya Janata Party promised to ‘bring back’ black money stashed abroad within 100 days of coming to power. Though almost halfway through Modi’s term, this promise remained unfulfilled, with the Government’s efforts to address the issue of black money resulting in only occasional big bang actions. These efforts have ranged from setting up a ‘special investigation team’ for probing the problem of black money, to passing stringent anti black money legislation, and also the opening of two voluntary (but narrow) disclosure windows in relation to undisclosed foreign and domestic assets respectively. Actions also included increased scrutiny of filings, by the introduction of ‘annual information returns’ for high value transactions, and the disclosure of ‘aadhaar number’ and passport number in income tax returns. Our May 2016 blog article took you through the problem of black money and India’s response to the same.
However, the sudden decision to demonetise India’s highest-denomination currency notes took the entire nation by surprise. Since midnight on November 8th, 2016, notes in denominations of ₹500 and ₹1000 are no longer legal tender and have been withdrawn. The bold step taken by the Government has had not only financial, but also social and legal repercussions for citizens. This surgical strike against black money hoarders has plunged into fear and uncertainty millions of honest taxpayers and common citizens holding cash savings. Pursuant to the demonetization scheme, the Indian banking system is witnessing the deposit of large sums of unaccounted and untaxed money; which some foresee, may be diverted towards welfare schemes and used to inject more liquidity into the lending system. Also, as many citizens are in possession of huge amounts of undeclared and untaxed cash reserves, they are struggling to find legal ways to convert the same into the new currency, and yet escape scrutiny and surveillance by the authorities.