Simple but sure steps to curb black money in India

Curbing Black Money and Corruption

Towards an Honest India

Reforms Suggested

By CA Prem Garg, Chandigarh

One of the major reasons for Corruption and black money, in any country, is the systematic failure of Government policies and programs. In India, over the years policies have been framed by the successive Governments, in such a way that there was always a scope for corruption and creation of black money. Without going into the past mistakes or blaming anybody for the present mess, where we are today, we must try to find out the simple and effective remedies to root out corruption and black money from the Indian System. Greed is a basic human nature. Most of us are honest till we get a chance to be dishonest and its true for everyone in the world and not only for, we Indians. So it is futile to expect that people will become honest overnight by any magic stick or by enactment of a Lokpal bill or by providing stringent punishment for the corrupt. Till there is premium of dishonesty, things will never change. Only fair and just policies, with minimum scope of manipulation, proper checks and balances can ensure honest behavior from the public. There must be a incentive to remain honesty. Some of such policies, as suggested in the following paragraphs, will definitely ensure eradication of corruption and black money to a large extent and will be welcomed by all the sections of the society.

These suggestions are as under:

1. Black Money in real estate

1. Cash payments in property transactions should be declared as illegal. All payments should be through banking channels only. This SINGLE STEP will ensure eradication of black money in real estate transactions and property prices will tend to stabilize.

1. Any agreement for sale of property, to be a valid agreement, particulars of such agreement must be communicated to the revenue office of that area, at the time of execution of agreement itself or immediately thereafter by parties to the agreement. This step will ensure that original sale agreements with actual sales consideration are not destroyed at the time of final payments.

1. A clause should be added to the Benami Properties Act, that GPA of any property with a right to sell can be given only to a family member and not to any third party. This step will take care of all the benami transactions in real estate, evasion of stamp duty, capital gains tax and circulation of black money.

1. Collector rates of any property should be at par with the market value of such property and be revised every year. To compensate the public for increase of collector rates, stamp duty should levied only on the addition to the value of the property i.e. rebate of stamp duty paid earlier by the purchaser should be allowed. Rates on Capital Gains Tax on property should be reduced further. This step will encourage the public to be mention actual sales consideration in the property agreements and help reduce the component of black money in such transactions.

1. No stamp duty or other taxes be charged on transfer of properties amongst family members. This will avoid unnecessary litigation, collusive decrees and harassment to public.

1. High income group tax payers namely public servants, politicians,  businessmen, other persons falling under creamy layer parameters and all those having wealth over Rs One crore (excluding one residential house), should be required to file statement of their assets and liabilities, including those of spouse and children (particularly details of immovable properties) along with their tax returns, every year.

1. Restrictions on Cash

1. No person or family should be allowed to keep cash beyond a prescribed limit say Rs Twenty Lacs at home or in any locker, except for the explained genuine business needs.

1. Any expenditure on purchase of expensive household items, air tickets, foreign currency, vehicles, gold, bullions etc. beyond say Rs 50,000/- should be through banking channels only.

1. In business or profession, as per provisions of Section 40A(3) of the Income Tax Act, any expenditure or payment in cash beyond Rs 20,000/- is disallowed. The applicability of this provision should be extended to transactions of capital expenditure also. Payment to creditors in cash should be disallowed if it is in excess of say Rs 50000/- in a year to a single party.

1. Assets held abroad

1. Every person or entity holding any bank account or any assets abroad, must declare the details of such bank account or overseas assets, in his tax return every year, including that of his spouse and children.  

These steps will not only ensure the eradication of black money but will also put a stop to circulation of fake currency in India. Cash transmission through Hawala will also be checked to some extent. Such steps will be more effective than any other reforms.

Please mark my words, there is no place in the world better than INDIA, let us make it worth living.

CA Prem Garg

SCO 2461, Sector 22-C,

Chandigarh

Mobile   : 9872420001

Email  premgarg@yahoo.com

Note: A Brief write up explaining the need for these suggestions, is given in the following pages.

BAN CASH PAYMENTS IN PROPERTY TRANSACTIONS

1. Cash payments in property transactions should be treated as illegal. All payments should be through banking channels only. This SINGLE STEP will ensure eradication of black money in real estate transactions and property prices will tend to stabilize.

1. Major bulk of black money gets invested in real estate. That’s why property prices in India are skyrocketing. Residential property has gone out of the reach of common people, even the middle class.   

1. Everyone in India, except the Government agencies, knows that the real estate sector thrives on black money. In almost all the property transactions fifty to seventy percent payment is made in cash, which is never accounted for. Original sale agreement is destroyed at the time of final payment or execution of the sale deed. Therefore, if cash transactions in property transactions are declared illegal, there will be no scope left for circulation of black money in property transactions.

1. For this purpose the Government can issue just one line notification under the Transfer of Properties Act, that any cash payments in property transactions will be illegal.

1. It should also be incorporated in the said Act, that for an agreement of sale of property, to be a valid agreement, particulars of such agreement must be communicated to the revenue office of that area, at the time of execution of agreement itself or immediately thereafter by any of the party to the agreement. Till particulars of such agreement are not filed with the revenue authority, it can’t be treated to be a legally enforceable agreement. A register or computerized record can be maintained by the office of Sub Registrar, to make relevant entries of all such agreements. (Just like a register of a Notary Public).   Such a step will ensure that only the actual price of the transaction is mentioned in the agreement.

The need to make above mentioned two notifications is illustrated by some examples as given hereunder:

1. According to a news item in The Tribune dated 23^rd June, 2011, (reproduced at Annexure I)  Mr. Gurinder Garg of Chandigarh had paid in cash an amount of Rs Six crore, as token money, for purchasing land. One must wonder why such a huge amount was paid in cash instead of making payment through banking channels.  

1. During a search by Income Tax Department, Chandigarh, on the premises of a private limited company at Chandigarh on 17.09.2008, two sales agreements were found, in one such agreement Rs Six Crore Fifty Lac was received in Cash by the company on 1^st March 2008 and in other agreement Rs Five Crore was paid in cash by the company on 9^th July, 2008. Now the question arises, why a limited company, which definitely has bank account, should receive or pay Crores in cash. It is obvious such agreements were meant to be destroyed later on.

1. Recently the Income Tax department has conducted searches and surveys on the real estate agents and developers at Chandigarh, Delhi and Gurgaon. Each and every party surveyed made surrender of undisclosed income ranging from five to hundred crore and not even a single party came clean. It is evident that all these surrenders were the result cash dealings involved in property transactions.

1. In the cash at Judge door case, cash of Rs 15 lac was being delivered to Justice Nirmal Yadav. She pleaded that cash was sent to her against a property transaction at Solan in Himachal Pradesh.

1. In Tibtean leader Karampa case, the Una police had recovered Rs 1 crore stashed in a bag from a vehicle owned by Bharadwaj on January 26 and arrested his driver and another person. Later, investigations revealed that the money was a part payment of a land deal between the trust and Bharadwaj.

1. Except a few reputed builders, most of the builders don’t keep proper records of their allotments. On the same day one plot is booked for ten lac and another in the same building is booked for twenty lac. If any Govt agency checks the records of any builder in Northern India, glaring inconsistencies will be found, resulting into disclosure of millions of undisclosed income.

1. To give another example, ring up any property dealer in Chandigarh and ask the price of one Kanal residential Plot in any sector of Chandigarh. As on date the going market rate of one kanal (500 Sq Yards) plot is around Rs Eight crore. The collector rate of such plots in Chandigarh is Rs Two Crore only. Most of the sale deeds (Say 95%) are being executed only at the collector rate. Balance five to six crores are paid in black money only. Similar is the position all over India.

1. GAMADA, Mohali, (Punjab) invited applications for 3950 residential plots in Aerocity at Mohali, against which 296322 applications (i.e. 75 times) were received. Plots were allotted by draw of lots @Rs 12000 per Sq Yards. Immediately after the draw and till date the minimum average market price of such plots has been Rs 30000 per Sq Yards. That means on a one kanal (500 Sq Yard) plot the net profit is at least Rs 90 Lacs. Hundreds of plots have already got sold and resold till now. Everyone has shown the plot sold at no profit basis and the whole transactions are being settled in cash only. We wonder, why a person getting a plot in draw with one out of seventy five chances, sells the same within a month of draw at par, by making no profit. It’s nothing but circulation of black money and evasion of taxes on profits.

1. Similarly HUDA in Haryana has held many draws for residential plots in the past years. In each such draw the applications received are more than hundred times, the number of plots. There is invariably a very high premium on such allotments. Most of the allotters have sold their plots over the years, at no profit basis.  

1. Most amazing aspect in the sale of these plots have been, that till the plots are transferable by the HUDA or GAMADA without execution of conveyance deeds, the white money for sale remains the allotment price and after execution of sale deed the white money becomes equal to the collector rate, which is generally  three times the allotment price. Whereas the actual sale price is again two or three times the collector rate. For example in Panchkula in new sectors the allotment price of a one kanal plot by HUDA was Rs 30 Lac, the collector rate as on date is Rs 105 Lacs and the Market price of the same plot is Rs 250 Lacs. Now if you are buying this plot for which conveyance deed is not yet executed, you need to pay only Rs 30 Lac in white and balance Rs 220 Lacs in black. If the plot is sold after execution of the sale deed, you need to pay Rs 105 lac in white, being the collector rate and balance Rs 145 Lac in black. So the same sizes of plots in the same sectors are being transacted at different prices. Black money earned from corruption or tax evasion plays the major role in all such transactions. Please ring up any property dealer and you will know the truth.

1. Surprisingly none of the developers in India, including State Government Authorities like HUDA in Haryana, PUDA/GAMADA in Punjab etc, no where enter the sales consideration paid by purchaser to the seller, in any document or records, while transferring the plots and thus inadvertently facilitate the circulation of black money.  

1. Need to ban cash in property transactions is also important in view of the nefarious designs of land mafias operating in the country. Thousands of complaints and litigations are pending in the India courts, where seller claims that either he didn’t sign the sale agreement or his signatures were forged or he was forced to sign such papers, showing the sales consideration having been paid in cash. If all the payments are routed through banking channels, the transfer of funds to bank account will itself be a proof of genuineness of such deals.

BAN POWER OF ATTORNEYS OF PROPERTIES TO THIRD PARTIES

1. A clause should be added to the Benami Properties Act, that GPA of any property with a right to sell, can be given only to a family member and not to any third party.

1. Power of attorneys in respect of immovable properties, containing powers to sell, mortgage, gift or lease of properties, including transfer of lease rights in respect of leasehold properties should be valid only if given to blood relations and not otherwise.

1. All such attorneys already given before the date of such notification, to other than blood relations should cease to be enforceable after the expiry of one or two years from the date of   such notification.

1. This step will take care of all the benami transactions in real estate and evasion of stamp duty and capital gains tax and circulation of black money.

1. It is quite natural that, nobody gives GPA of his property to a third party, without any consideration. If he has to give GPA at all, he will obviously give the same to his family member or a relative.

1. In some rare cases, if at all a GPA has to be executed in the name of a third party, such GPA can only be for the purpose of maintenance of such property and not for alienation of the property and it should be without the rights to sell.

1. All the GPA’s executed in India to third parties, till date are actually the benami sale deeds and nothing else. For example in Chandigarh and Delhi, most of the properties being on leasehold basis and not being transferable have been transacted on GPA basis. Even the Government accepts this fact and has started allowing transfer of properties in the names of GPA holders. Properties have changed hands many times in the last three or four decades, which means circulation of black money and evasion of stamp duty and income tax evasion worth billions of rupees.

1. People flout the law, by virtue of GPA’s. For example in Himachal Pradesh no person other than a domicile of HP, can purchase land, without permission of the state government. In hundreds of cases, on investigation, it has been reported that people purchased properties in Himachal on GPA basis and title holders are only benami holders of the property.

TRANSFER OF PROPERTY AMONGEST FAMILY MEMBERS TO BE WITHOUT STAMP DUTY

Though it is not relevant to the topic being discussed, but due to harassment to public, it is suggested that No stamp duty should be levied on property transfers amongst direct blood relations. In almost all the states, if parents wish to transfer property to their children, stamp duty at varying rates has to be paid on the value of the property. Which is totally unjustified? Most of people don’t transfer their properties in the names of their children, to avoid paying stamp duty. After death there is always dispute among the legal heirs and thousands of such cases are pending in the courts. If a WILL is executed, it also needs to be probated in most cases and is generally contested by other legal heirs. Presently people in order to avoid paying stamp duty, procure collusive decrees from the courts and then get the property transferred. Therefore, if a person is allowed to transfer his property to his legal heirs, within his life time, without payment of stamp duty or any other tax, it will result into avoiding unnecessary litigation.

RESTRICTIONS ON KEEPING CASH AT HOME OR IN LOCKERS

1. In view of the improved banking facilities in India and advent of ATM’s, debit and credit cards, direct debits, direct credits, internet banking, online bill payments, RTGS, no family, should be allowed to keep cash beyond a prescribed limit say Rs Twenty Lacs.

1. If cash, in excess of the prescribed limit is found in any locker, premises, vehicle and vessel or in possession of any person, it should prima facie be treated as his undisclosed income and taxed on the spot plus penalties and prosecution, if such person fails to provide irrefutable proof to justify and explain the source of such money. 

1. In case of business assesses like firms and companies a higher need based limit may be allowed say up to Rs One crore at one location or plant. Now with the improvement in banking system in India and online banking being a reality, cash transactions should be restricted rather abolished in a phased manner. All purchases, including durable assets, if made through banking, will get automatically accounted for.

1. The need of this measure is of utmost importance, in the present day circumstances. We have seen in recent years that cash has been found in crores in the beds and lockers of the various persons. For Example Rs 8.16 crore was found in the locker of former chairman of Punjab Public Service Commission, Rs 44 lacs from vice chairman DDA, Rs 30.50 lacs from official liquidator of Punjab & Haryana high court, Rs Six crore from a Buddhist Monk, Rs 11.56 crore from a religious trust, Rs 3.60 crore from a former union minister, Rs 60 lac from a Pakistani singer, Rs three crore from an IAS couple in MP, Rs five crore from the roof of a passenger bus in Chennai. Only this week Rs 87 Lac cash was recovered from the residence of a lady DSP at Chandigarh, she was arrested taking bribe of Rs one lac. There are many instances of interception of cash being transmitted from one place to another and caught by police. Therefore there must be a reasonable limit, to keep currency notes at home or in lockers.

1. We fail to understand, when a person has reached bank, why he need to put money in locker instead of his bank account. Why should a person keep crores in his bed at home and risk theft, instead of keeping in bank? Reasons are obvious and need not be explained.

1. This step will also help in eradication of fake currency. (some newspaper clippings are given in the attached annexure, showing how the cash was recovered by police or CBI during raids)

LIMITS ON CASH EXPENDITURE

1. Under the Income Tax Act, any expenditure or payment in cash beyond Rs 20,000/- is not allowed. Such a provision should also be made to cover transactions of capital expenditure, hotel parties, purchase of vehicles, purchase of gold or bullions and expensive household appliances etc.

1. Any type of expenditure beyond Rs 50,000should be allowed to be made only through banking channels.

1. Multiple payment to creditors in cash should be disallowed if it is in excess of say Rs 1,00,000/- in a year to a single party. 

1. Employers should be encouraged to make payments to employees and workers through banking channels, at least to regular workers. To start with it can be made applicable to employers having more than twenty workers and later on, to cover all employers. Today no authentic data is available with any agency about the actual wages being paid in India. While compiling data on national level, most of wages being paid in cash remain unaccounted for. Further many employers pay their employees in cash to avoid payment of PF, ESI and other benefits to workers like gratuity and ex gratia etc, whereas many other employers claim higher expenses by paying salaries in cash to fictitious workers.

1. Recently the Apex court wondered how a person can intake required calories by earning Rs 11 or 17 a day, which is the limit fixed for BPL family. Because no authentic data is available with the government, regarding actual wages being paid in India, so all planning go haywire.

New Delhi, July 22
The Supreme Court today grilled the Planning Commission and the government on the yardsticks for identifying people living below the poverty line (BPL), observing that the methods were beyond its comprehension. A Bench comprising Justices Dalveer Bhandari and Deepak Verma pointed out that according to one norm, any person earning more than Rs 11 a day in the rural areas and Rs 17 in cities would not come under the BPL category and would rather be treated as above poverty line (APL).

1. Government should start making all payments of cash subsidies, wages under NAREGA, old age pension etc, through banking channels only, to avoid frauds and bogus payments. This step will also ensure compilation of correct data at national level, about earnings of the people and to make proper assessment of poverty in India.

1. Cash should not be allowed to be received as share application money by the companies. Most private companies introduce cash credit entries through this loophole in the law because accepting or repaying cash deposits above Rs 20,000 is illegal under the Income Tax Act.

1. India should now move towards plastic currency. Banks should be directed to issue debit cards to all account holders for online payments. This will result in cash less transactions like developed countries. And thus there will be no need to possess any cash except for petty needs.

1. All business entities should be advised to get the equipment installed to accept payment by debit or credit cards, just like petrol pumps.

FILING OF ASSET DETAILS IN TAX RETURN

.                       Earlier people of high income groups were filing wealth tax returns, but over the years list of assets falling under the definition of taxable wealth has been drastically curtailed, resulting into filing of wealth tax returns by only a handful persons. Every high income group tax payer (particularly public servants, politicians, businessmen and other person falling under creamy layer parameters), and those having assets over Rs One Crore, (excluding one residential house), should be required either to file returns of their wealth, whether wealth tax is payable on such assets or not, or should file a statement of his assets and liabilities (particularly the details of immovable properties, bank lockers and foreign bank accounts), as on 31^st March of each year, including those of his spouse, minor and dependent children. This single measure will be enough for eradication of black money to a large extent.

FOREIGN BANK ACCOUNTS TO BE MENTIONED IN TAX RETURNS

Every person or entity holding any bank account or any assets abroad, must declare the details of such bank account or overseas assets, in his tax return every year, including that of his spouse and children.  

These are the measures, which don’t require any substantial changes in existing laws or any constitutional amendments. Only few amendments are to be incorporated in Tax laws or property laws. Once notified, these suggestions will act as a catalyst in growth of the country and will be a move towards an Honest India.

The author is a Chartered Accountant in practice at Chandigarh.

Contact Address

CA Prem Garg

SCO 2461 Sector 22-C, Chandigarh

Mobile 09872420001

premgarg@yahoo.com