Government moves in to plug note ban’s Northeast loophole

New Delhi: Acting on reports of huge cash movement from other parts of India to the Northeastern states, the income-tax department asked banks to report before January 31, all cash deposits made between November 8 and December 30 in excess of Rs 2.5 lakh in savings accounts, and Rs 12.5 lakh in current accounts.

“A lot of cash is flowing into Northeastern states from other parts of the country and being deposited in banks,” a senior I-T official told this newspaper.

“The submission of such reports, called ‘statement of financial transactions’ by banks to I-T departments is a usual annual affair, with the normal deadline being May 31 every year. But this year, it has been advanced to January 31 in the backdrop of the government’s demonetisation move,” the official added.

On November 22, a private chartered flight from an unscheduled airstrip in Haryana’s Hissar to Nagaland’s Dimapur, and carrying a relative of a leading Naga politician, was seized by the authorities along with cash worth Rs 3.5 crore in demonetised Rs 500 and Rs 1,000 currency notes. Reports said the same plane had made at least three such trips earlier without being detected.

Special laws meant for tribal populations in the Northeast region exempt them from paying income tax, and as such, they need not explain their sources of income for tax calculation purposes. Moreover, with large parts still outside the purview of the formal banking system, a cash economy is predominant.

This loophole is being used by unscrupulous individuals and other entities to transport black money into the region, after which the money is ploughed back into the banking system through RTGS and other modes by willing locals in exchange for cuts.

The Nagaland and Arunachal Pradesh governments had already issued advisories warning locals not to deposit cash on behalf of others.

A Nagaland government advisory dated November 18 said: “All tribals who are exempt from paying income tax are hereby cautioned not to allow non-tribals to park their money in their accounts of tribals as this is illegal and amounts to conversion of black money into white.”

An Arunachal Pradesh advisory dated November 19 said: “Citizens of Arunachal Pradesh who are exempted from paying income tax under relevant laws are hereby cautioned not to allow non-tribals to park their money in their accounts. Such practice will be deemed as illegal and is liable for prosecution.”

There is also a predominant security aspect to the issue as the Northeastern states are home to at least 50 militant organisations, which may have parked their funds elsewhere, but are now seeking to get it converted into new currency notes.

Interestingly, what is happening in the Northeast in the aftermath of the demonetisation move is a repeat of 1978 when the Morarji Desai government had denotified Rs 1,000, Rs 5,000 and Rs 10,000 notes, after which there was a massive flight of cash from across the country to many places in the Northeast region.

In a related development, security sources told this newspaper that the Cessna aircraft that flew in from Hissar to Dimapur is being looked into as a case of security breach, besides one of money laundering.

“This particular aircraft flew from a non-scheduled flying club airstrip in Haryana’s Hissar to a scheduled airstrip in Nagaland’s Dimapur. What if the aircraft was carrying weapons instead of cash? This is a case of serious security breach and a regulatory loophole that we will have to plug. We have held several meetings on the issue,” a security official privy to the development told this newspaper.

There are about 166 airstrips across India, of which only about 56 are scheduled ones or airstrips which have scheduled flights. The rest are non-scheduled and unregulated.

“As of now, the income-tax authorities are investigating the case from the point of view of money laundering, but the case will be referred to the home ministry and the civil aviation departments too,” the official said.