Jaitley spells it out: No tax immunity on deposit of old notes

Finance Minister Arun Jaitley on Wednesday said deposits of now-defunct old ₹ 500 and ₹ 1,000 currency notes in bank accounts will not enjoy immunity from tax and the land of law will apply on source of such money.

A day after the government announced the withdrawal of ₹ 500 and ₹ 1,000 banknotes in the country's biggest crackdown against black money, corruption and counterfeit currency, Jaitley said old higher-denomination currency notes have to be deposited in bank accounts to get newer or smaller denomination currencies.

"But it should be clear that it is no immunity scheme. This (deposit) does not provide any relief from taxation. The law of land will apply (on source of fund)," he said.

"If the money is legitimate which had been previously withdrawn from bank or earned legally and saved and had been disclosed, there is nothing to worry about," Jaitley said.

But if it is illegal money, source will have to be disclosed and if it is a crime money, or bribe money, then it is trouble, he told DD News.

The finance minister further said that housewives and farmers with genuine savings need not worry about depositing cash in their bank accounts.

"The small amounts that people will deposit like ₹ 25,000, 30,000 or 50,000 lying in house for expenses, whatever money could be there for meeting normal family expenses they need not worry. They can go to banks," he said.

The finance minister said for the first one or two weeks, replacements may be less but after 2-3 weeks as more currency notes come in market then normal replacement will be available.

The move would help make more and more transactions become digital, he said, adding now people will disclose income and pay taxes. "India will become a more tax-compliant society."

Jaitley said that people who have accumulated black money, crime money or bribe would suffer after this.

"There is a premium now that this decision has created on honesty and dis-premium on dishonesty," he added.

"Obviously there are some inconvenience for a couple of days or couple of weeks but those inconvenience cannot be alibi that India continues to live (with black money and parallel economy)," he said.

The decision would bring more transactions under the tax net and both direct and indirect taxes would move up. Reduction in parallel economy would increase the size of formal economy, Jaitley said.

Stating that the decision would have its ramifications on politics as well, Jaitley said some political funding has started by cheques and if this step can do some cleansing, it would be a great move.