It has been three years since Prime Minister Modi stunned the nation with a bold move to curb the parallel economy that had taken root in India – Demonetisation. Over the three years, many political and economic pandits predominantly from the Left have decried the move and asserted that it was an exercise in futility. However, Demonetisation has achieved several objectives in these three years.
Cancellation of the Legal Tender Status of Rs.1,000 and Rs.500 denomination currency notes on November 8, 2016, popularly known as demonetisation not only became a milestone in India’s fight against corruption but also began to create a culture of pride in honesty. It restored the honour of the honest.
- Shock to black money accumulators: For three years, demonetisation has been an eyesore for those who had a free run in generating and accumulating black money but suddenly had to face the full force of the law.
- Corrupt crying the loudest: Those who have been crying foul for three years are the same kind of people who either kept quiet or were active beneficiaries of a system of tax evasion, tax avoidance, generation of black money or promoters of shell companies.
- Rise in tax returns and tax collection: The upsurge in the number of tax returns filed is more than sufficient proof of the success of demonetisation being able to bring into the system the accumulation of wealth which was happening outside the purview of the formal economy.
- Body blow to shell companies: Registration of more than three lakh companies has been cancelled and yet there has not been a whimper of protest. What can be more proof that these were shell companies opened with the sole purpose of money laundering? An entire network has been forced shut in one simple step.
- Rise in the culture of honesty: The giant leap in the digital payments system is proof that the common people have embraced the message of demonetisation and have been equal partners with the government in promoting a culture of honesty.
Following are the 10 most important goals that Demonetisation achieved in the past three years.
Immediate Impact – Unearthing of Undisclosed Income
During November 2016 to March 2017:
- Searches conducted led to the seizure of Rs. 900 crores, including cash of Rs. 636 crores and admission of undisclosed income of Rs. 7,961 crores.
- About 8,239 surveys were conducted leading to the detection of undisclosed income of Rs. 6,745 crores.
Clean Money, Cleaner Economy, Thanks to Demonetisation
- Operation Clean Money was launched on 31st January 2017 to follow up on the action of demonetisation, to create a tax-compliant society.
- Cash deposit data during demonetisation was analysed to identify persons whose cash transactions did not appear in line with the tax payer’s profile.
- This analysis resulted in the identification of about 17.92 lakh persons for online verification process in the first phase.
When Non-Filers Became Filers; Non-Compliance Became Compliance
- 04 lakh persons who deposited cash of Rs 10 Lakh or more but had not filed their return of income till the due date of filing returns were identified.
- 09 lakh such identified non-filers responded. These persons paid self-assessment tax of Rs. 6,531 crores.
- Electronic campaigns for other categories of non-filers with and those with potential tax liabilities resulted in overall, Self-Assessment Tax of more than Rs 13,000 crore paid by targeted non-filers.
Demonetisation Pushes Direct Tax in the Right Direction
- Net direct tax collections for 2017-18 was Rs. 10.03 lakh crore, which is 18% higher than the collections for 2016-17.
- On the other hand, the growth rates in 2015-16 and 2014-15 were only 6.6% and 9.0%, respectively.
- The growth rate of 2017-18 was the highest in seven financial years before it.
- In 2017-18, personal income tax Advance Tax collections increased by 23.4% and Self-Assessment Tax by 29.2%.
- In FY 2018-19, Corporate Tax clocked a growth rate of 16.2% and personal income tax of 12.7%.
- Voluntary tax payments under Advance Tax in 2018-19 continued to increase at a healthy rate of 14.8% with Corporate Advance Tax increasing at 13.4% and personal income tax Advance Tax at 20.1%.
Demonetisation Widens Tax Base, Narrows Non-Compliance
- During FY 2017-18, 6.86 crores ITRs were filed with the Income Tax Department as compared to 5.48 crore ITRs filed during FY 2016-17.
- This showed a stupendous growth of 25%.
- It is the best growth rate achieved in the five years before FY 2017-18.
New Filers Grow as Trust in New Economy Grows
- During FY 2017-18, the number of new ITR filers increased to 1.07 crore, compared to 85.51 lakh new ITR filers during FY 2016-17, a growth of 25%.
- In the years before FY 2016-17, new filers were between 50 lakh and 66 lakh.
- There is a clear upswing in the new tax filers after 2015-16.
- During FY 2018-19, 1.1 crores new ITR filers have been added
- Besides, the number of persons filing return increased from 5.4 crores in FY 2017-18 to 6.3 crore in FY 2018-19.
Demonetisation Brings Corporate Compliance Like Never Before
- During FY 2016-17, 8.01 lakh returns were filed by corporate taxpayers
- During FY 2017-18, 9.38 lakh returns were filed, showing a growth of 17.2%.
- This growth rate is more than five times higher than the growth rate of 3.0% in 2016-17 and 3.5% in 2015-16.
Notes in Circulation – the Difference Demonetisation Made
- The notes in circulation as on November 4, 2016, were Rs. 17,741.87 billion
- The notes in circulation had grown at an average growth rate of 14.51% year on year since October 2014.
- At this rate, notes in circulation would have increased to Rs. 25,122.53 billion as on May 31, 2019.
- However, it increased only to Rs. 21,713.85 billion as on May 31, 2019 (almost 20% lower than would it would otherwise have been).
Digital Payments Became a Way of Life, Thanks to Demonetisation
- In November 2016, the volume and value of digital payments transactions were 833.18 million and Rs. 88,933.35 billion respectively.
- In June 2019, these were 2,368.72 million (184% more) and Rs. 143,378.42 billion respectively (60% more).
- Volume has multiplied even faster than value, showing a broad basing of digital payments even for smaller payments.
Closure of Suspect or Shell Companies
The Registrar of Companies (ROCs) removed the names of 2,26,166 companies during 2017-18 and 1,12,797 companies during 2018-19, respectively from the register of companies. These companies had not filed their financial statements and or Annual accounts for a continuous period of two immediately preceding financial years.