Next phase of Income Tax Department crackdown on demonetization deposits to start in March


The I-T Department will most likely launch the second phase of ‘Operation Clean Money’ in early March to continue its crusade against black money deposited into banks through seemingly legitimate means. Of the total Rs.15.44 lakh crore that was deposited post demonetization, it is believed that black money to the tune of Rs.4.5 lakh crore also made its way into the banking system.


Operation Clean Money Phase 2

Two data analytics firms are being hired by the I-T Department to sort through the mountains of data, to find suspicious activity related to deposits of over Rs.5 lakh since November 8, 2016. Data analytics will attempt to match suspicious accounts by comparing PAN Card details, addresses, email IDs, phone numbers, or any other identifiers that could link to already known fraudulent accounts. Accounts opened in different names but found to be linked to the same cache of funds being diluted to avoid suspicion are the ones the I-T Department is looking to investigate.

Bank accounts showing similar deposit patterns, amounts, etc. will also be under the scanner and it seems that it is only a matter of time before the I-T Department finds and fines fraudsters trying to hide their black money.

The investigation will not consider single smaller deposits of under Rs.5 lakh from individuals known to be gainfully employed paying TDS, etc. An I-T Department official has stated “The Tax Department may ignore deposits below Rs.5 lakh on a standalone basis for the time being.”

That being said, the total amount recorded in deposits over Rs.2 lakh is well over Rs.10 lakh crore – so the I-T Department certainly has its work cut out. Out of this, the government has decided that Rs.5.5 lakh crore is accounted for as having been deposited by PSUs, government agencies, or by those whose deposits match their earnings on record/match previous deposit patterns. The remaining Rs.4.5 lakh crore is under heavy scrutiny, and the department is sparing no expense is tracking down the source of this money in order to fulfill the primary goal of demonetization, which was allegedly to curb the black money menace in India.

In order to kick off phase 2 of Operation Clean Money, the government must first receive Statement of Financial Transactions (SFT) from banks. The information present in the SFT will be matched against the I-T Department’s own records, and data analysis and matching operations will be performed by the hired big data firms.

Operation Clean Money Phase 1

In the first phase of the crackdown on black money deposits, the I-T Department sent out 18 lakh SMS and emails to those they felt made ‘suspicious’ deposits since the demonetization decision, demanding an explanation as to the source of the funds and tax information. Of the 18 lakh people who were contacted, around 7 lakh replied online, but the remaining 11 lakh depositors remain elusive.

Some financial and tax experts are of the opinion that the emails and SMS sent out by the I-T Department demanding an explanation aren’t legally binding orders, as they were not formal tax notices. The department should ideally be sending out official formal tax notices to legally compel the recipients of these orders to respond.

Big challenges with Big Data

Big Data Analysis firms will compare deposit data post-demonetization to Income Tax Return (ITR) filings to catch any discrepancies and/or possible cases of tax evasion.

It could take up to 2 whole years for the firms to wade through the massive swamp of deposit information and I-T Department data, but the department remains hopeful and positive of bringing tax evaders to justice.

A huge challenge currently plaguing the department is the fact that many people aren’t registered on the online income tax portal, for which field offices have been sending out letters urging people to register online to track their taxes.


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