Govt needs to probe investments in realty, gold to ascertain black money

Whether demonetisation has been able to make a significant dent on unaccounted wealth held by Indians is a question for which answers will come over a period of time. The process of scrutiny of income tax returns of individuals and companies has just started and since the assessment order itself takes time, in addition to the long drawn legal battles, which will undoubtedly be fought by most assesses, it will be quite a while before claims made by government are either proved or disproved by hard numbers in terms of tax collected.

But there is another aspect to this campaign that merits attention. What happens to the pool of black money created over a period of time, not available in hard cash on November 8, 2016 but invested in different assets? Conventional wisdom tells us that in India there are only two assets where unaccounted money gets absorbed in large quantities; the first is gold and the second real estate.

In the case of gold, it is not easy for tax authorities to determine whether the yellow metal bought is from legitimate money or not. After all households have bought gold for years and to ascertain the timing of its purchase and the buyer’s income in that financial year would be impractical and self-defeating. It would lead to unnecessary litigation, which is hardly likely to yield results, particularly in the Indian context. In the case of gold, the government needs to focus on a system, which ensures that fresh absorption of black money is curbed. It is in the area of real estate where the government has the tools to bring the guilty to book without unnecessary litigation. The only problem here is that real estate is a state subject, making it difficult for the central government to amend laws that infringe on powers of the state.

But the effort has to be two-pronged. It would be sound to amend IT laws, which make it mandatory for every one holding real estate assets to make a one-time declaration of assets, particularly those holding multiple houses or land beyond a certain limit. The income tax department should use analytical tools to determine whether a person holding assets had enough cash flows to acquire them at that point of time. This can be easily ascertained through old records of tax returns that the IT department has in its possession. Given the way land records are maintained in many states, there is good chance that the IT department would be able to identify those who have not even filed their IT returns and continue to hold real estate assets bought in past from unaccounted income.

Obviously, it cannot be accomplished without the help of state governments. Land departments of all states should be asked to update its record by linking Aadhaar card to its land holding record. The moment that happens, the IT department would be able to unearth benami holdings. Owners, who do not have declared means of buying those assets, should then be asked to declare the name of the real owner or face prosecution. Apart from the IT department, even states would know the name of those who have violated their maximum land holding norms. To be sure, it is not an easy exercise and states would require a lot of persuasion, but the first steps need to be taken as soon as possible.