Dr. Sanjiv Agarwal
Recently, Income Tax Department searched a large number of private lockers and vaults in the city which resulted in unearthing of unaccounted or unexplained jewellery, gold, diamonds and cash in the lockers belonging to people whose whereabouts are not known ie, benami holdings. While this was going on, separately, Income tax department has made it mandatory for all high value buyers of jewellery to declare or mention their Income tax Permanent Account Number (PAN) to the dealer from whom such purchases are made.
The Amendment to section 114B of the Income Tax Act, 1961 brought in vide Notification No. 27/2011 dated 26-5-2011 has been introduced as a high proportion of the black money on which tax has not been paid is considered to have been invested in jewellery and real estate. The Income Tax Department has already sent a communication to all jewellery dealers, bullion traders, nationalised and private banks which are distributing debit cards. CBDT has now incorporated new transactions under Rule 114B of the Income Tax Act which will require PAN for these transactions. The rule also states that the PAN number is necessary for use of debit card, insurance payments exceeding Rs 50,000 a year, buying jewellery or bullion exceeding Rs 5 lakh. The transactions that already require PAN are sale or purchase of any immovable property valued at Rs.5 lakh or more, sale or purchase of a motor vehicle, any time deposit (e.g. fixed deposit) exceeding Rs 50,000, contract of a value exceeding Rs. 10 lakh for sale or purchase of property, making an application for installation of a telephone and any one time payment to hotels and restaurants against their bills exceeding Rs. 25,000.
Income Tax authorities has made it mandatory to quote PAN number on return on Income. PAN number is also used in correspondence with Income Tax Department. It is also mandatory to provide PAN number for certain financial transactions such as investment in Mutual Funds, opening a Demat account etc.
The mention of PAN has been made mandatory wef. 1st July 2011 for all jewellery / bullion purchases of Rs five lakh or more at a time. It appears that this has been basically done to check the menace of the black money or unaccounted purchases or investments in gold or such jewellery. Though the directive could affect the jewellery sales, it is not expected that it will adversely impact the industry. Indians are now in the habit of quoting PAN not only for stock investment, purchase of vehicles, foreign visits etc but even for hotel accommodation. So, PAN based jewellery purchase may not be resisted much.
Also, Indians often buy jewellery in small quantities in cash or exchange for gold. Such practice would avoid quoting of PAN. In all likelihood, buyers of jewellery for more than Rs 5 lakhs may even split their purchases below Rs 5 lakh or spread their purchase so that jewellery is bought for less than Rs 5 lakh on each such occasion. Also, total jewellery purchase could be shared between two or more dealers.
High-value purchase of jewellery, among valuables, have often been feared to be a much favoured route for circulation of black money and quoting of PAN would help the tax authorities in tracking such transactions. Recently, RBI had also asked the banks to consider the jewellers and bullion dealers as high-risk customers and to keep an enhanced vigil on their transactions. The business transactions of jewellers and bullion dealers are highly cash intensive in nature and it is feared that they could be used for flow of black money into the system.
Nonetheless, it is a move that could help the revenue authorities to keep a vigil on high value transactions as well as trap black money use but only to a limited extent as it suffers from many loose ends.
