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Enough loopholes in the system to redeem undeclared income

11 November, 2016

The government’s move to withdraw Rs 500 and Rs 1,000 bank notes was aimed at ridding the country of the menace of illegal, untaxed wealth and counterfeit currency that is used in terror financing. The move has evoked mixed reactions, with people being either fully in support or extremely critical of it.

Some industry players, however, say there are enough loopholes in the scheme put in place by authorities. While we at VCCircle do not recommend breaking the law, experts say these loopholes may be exploited to possibly circumvent government regulations and redeem undeclared income.

Laundering money with willing partners or friends: The government on Thursday said that deposit old notes totalling up to Rs 2.5 lakh deposited into accounts will not face any income tax scrutiny. Although this has been done so as not to inconvenience small traders, housewives and honest taxpayers in general, this does open a window for the not-so-honest individuals who may seek the help of such friends, partners or even willing strangers to convert their black money into white.

Exchanging old notes in small amounts till the end of December: The government has allowed all individuals with valid government identification proofs to visit any branch of any bank or post office and exchange old notes for new, up to a maximum limit of Rs 4,000 in a single transaction. There is, however, no limit on the number of such transactions one can make on a single day. This allows individuals to go around to as many bank branches as they can and keep exchanging the old currency for new in small amounts.

Smart invoicing: This is a classic money laundering technique that requires a trader or a supplier of goods who is willing to be an accomplice and agrees to issue backdated invoices that show some goods sold or services rendered. He then takes the cash, launders it via his company’s bank account, takes a cut, and returns the rest of the money to the original owner. 

A gym or a club membership: Local gyms and clubs may offer individuals a long-term membership if given a decent amount of money and thus, the currency that has been rendered useless can be put to use.

Buying jewellery: Jewellers are often used to launder wealth. But tax authorities have started conducting search and survey operations on jewellers in several cities, according to a report by The Times of India.

(Aman Malik is Senior Assistant Editor at VCCircle.)

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Enough loopholes in the system to redeem undeclared income

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