Note Ban: 200% Penalty on Income Mismatch, we show how to calculate it. It can do wonders to Economy.

The government on Wednesday warned that the cash deposits above ₹2.5 lakh threshold under the 50-day window could attract tax plus a 200 percent penalty if the cash deposited in bank accounts doesn’t match with income declared.

 “We would be getting reports of all cash deposited during November 10th to December 30th, 2016, above a threshold of ₹2.5 lakhs in every account. The Department would do matching of this with income returns filled by depositors and suitable action may follow,” Revenue Secretary Hashmukh Adhia said.

 “Penalty of 200 per cent of the tax payable would be levied if the cash deposited in bank accounts don’t match with income notebandeclared,” he added.

Any mismatch with income declared by the account holder will be treated as a case of tax evasion.

If governments calculations are right, it would do wonders to the economy. Reducing currency in circulation per se is anti inflationary and when you don’t have to pay interest on those funds it is good for the system too.

Whenever money is burnt, makes the holder poorer and increases the collective wealth of the country

RBI will have a full account from the exchanging banks about how many old notes were brought back fir exchange or deposit. Whatever is left by the end of the year is as good as being “burnt” by the holder. Whenever money is burnt, makes the holder poorer and increases the collective wealth of the country. It is like the RBI being handed the cash without being asked to give anything in return. Every currency note is a promise by the RBI for that amount and they no longer need to honour that. RBI can print that much amount more without increasing their liability. The government has that much more money for public spending! The entire currency base is known, in circulation and is being put to use. This is a good thing.

Here is the calculation on how to arrive at the tax and its recuperative  penalty for the deposits you have made.

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By Manjunath Krishnamurthy