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Photo Credit: Shah Junaid/VCCircle

Enough loopholes in the system to redeem undeclared income

10 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.

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View Comments
Enough loopholes in the system to redeem undeclared income

Enough loopholes in the system to redeem undeclared income

Aman Malik 2 years ago
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Late on Tuesday, the Narendra Modi government took the country by surprise and...
Muthu . 2 years ago

This is an atrocious piece! Take it down now or I am going to report! Aman Malik, be prepared to see the insides of a jail soon!

Dr Aniruddha Malpani . 2 years ago

You can be sure your Income Tax officer is also reading this post !

Rahul . 2 years ago

Shame on you guys for publishing something like this. Maggots like you are the reason the term “presstitutes” exists. Disgusting

Sharma . 2 years ago

I am shocked at this post. Instead of supporting this brilliant initiative where our country will be corruption free – you are sharing tips on how to circumvent/ bend the rules.

You will do yourself a favor by deleting this post and apologizing to all your readers.

It is indeed this thinking that needs to change. We need a someone who can talk straight, is not corrupt and places the country above all. Let’s not find ways to cheat our country.

Niraj . 2 years ago

Even if people try this out, there is a small amount of money which can be made white with this.. for people who have criers and lacs of stashed money, they don’t have an option…

RSA . 2 years ago

Pls do not publicise these loopholes .. this may be exploited for unintended usage. when the government tries to do something do lets support rather than finding a way around it

Aman Malik . 2 years ago

As we have explicitly pointed out in the story, right upfront, we do not recommend any of these methods. Our aim is merely to point the possible loopholes out in the system, that people are reportedly already trying to exploit. If anything, we strongly recommend that the government take urgent steps to curb the same.

Aman Malik.

Karan Agarwal . 2 years ago

A few points to note for the author and the uninformed :-

1.) Depositing 2.5 lacs will not face any scrutiny. This does not apply to those who submit IT returns. You have 1 lac cash in hand in your books, how can you deposit 2.5 lacs. Even if they do not scrutinise it now, it will create problem when you file your tax returns next year as your books won’t tally up. My advise to anyone thinking about doing it for friends – don’t , its not worth it.

2.) Come on dude, at 4000 per transaction and given the state of banks right now it takes 2 hours to do one transaction, one person cannot reasonably convert more than 16000 per day. 16,000 per day x 50 days = 8,00,000. If you have one crore that you need to convert you will need 13 people doing just this for the next two months. And I am quite sure that the IT dept has put in enough alerts in the banking system that if someone has done 100-200 such transactions their id (Aadhar, DL, Voter ID, etc) will be flagged for closer scrutiny. If & when the police catches them , they will surely rat you out. 20,000-30,000 paid to them will not be worth spending 6-12 months in jail.

3.) True, a bit can be converted this way. A BIT ! You are a trader and your annual turnover is 5 crores, but on 7th Nov and 8th Nov your turnover is 1 crore ??? And all cash sales on top of that ? Whoever does this excessively will at least be surveyed by the IT dept. If you value your business, don’t do this. The penalty may be huge !

4.) HAHA, sure if you have to “convert” 10,000-20,000 to white go ahead, buy a gym membership.. This point I am sure has been added to increase the length of the article

5.) The jewellers can only sell that much stock that they have in their books, otherwise what will they do will the surplus cash?. Most would have already done so and they will be royally screwed if the taxman visits them. Why you ask ? Suppose a jeweller has 5 kg of gold in the books and 10 kgs physically. They sold the book gold at 50,000 per 10 gms and made a neat profit. Now they have 0 kg in the books but still 5 kgs in stock. When the taxman visits their store, all the physical gold gets seized on account of being black and they are put under audit. Huge penalties will be there and depending on how strict Modi Ji and Arun Jaitley is feeling, an exemplary jail term could also be waiting for such jewellers. (The numbers in the scenario I gave are way to simplistic for easy understanding and brevity’s sake. The reality though similiar is too complicated to explain here)

Epilogue :- If you have unaccounted cash and are feeling like a holiday in Indian Prison follow any of the steps above, although feel free to follow #4 without risk of fallback. This is quite a brilliant scheme by our government and there are very few loopholes which could actually work. I can think of 2-3 but of course I will not share them here. Nevertheless even those are with their fare share of risk. Best option is to forget about the majority of your cash pile and start working anew on a white future.

Jai Hind !!

Samip . 2 years ago

People will find loops n holes. But vigilance and crackdowns will force their hand. You can save through loopholes but not the full amount.

What I only know is this move has supported the government treasury on a positive note.

It would be great if we could see next year the benefits passed on to the general public.

A Good move, though causing a little inconvenience but not as much as a woman in labour. So hats off to the government and I’m proud of our Prime Minister. Jai Hind.

Enough loopholes in the system to redeem undeclared income

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