A STUDY OF DEMONETIZATION OF CURRENCY AND ITS IMPACT ON TAXATION IN INDIA

On November 8, 2016 Prime Minister Narendra Modi announced the cancellation of the legal tender of Rs500 and Rs1,000 notes with effect from 9 November. The first visible impact of demonetisation on government tax revenue was an increased tax base. As per the publically available data, India had only 55.9 million individual tax payers at the end of 2015-16. In 2016-17, the government added 9.1 million new taxpayers, which represented an 80% increase over the typical yearly increase. At the same time, it was revealed in May 2017, that number of people who had filed income tax returns also got increased by 9.5 million. Due to demonetisation, the tax collection has witnessed a double digit growth. As far as the indirect taxes are concerned, the excise duty got increased by 43.5%, service tax by 25.7% and custom duties by 5.6% At the same time,. India’s direct tax collection in the fiscal year 2017-18 stood at about Rs 10.03 lakh crore. In this research paper, researcher has tried to analyse the overall impact of demonetisation on direct tax as well as indirect tax as per data available from finance ministry latest report. Key Words : demonetisation, legal tender, tax base, direct tax, indirect tax.