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How India’s Taxman Is Using Cash-Crackdown Deposit Deluge to Ensnare Evaders

Canceling cash was just the beginning.

An article in Wednesday’s Wall Street Journal takes a look inside the next phase in India’s war on the underground economy. After Prime Minister Narendra Modi forced his countrymen to turn in their high-value rupee bills late last year, tax sleuths are now sifting through records of millions of bank deposits to see who might have brought in cash that was earned illicitly or without paying taxes.

It’s a giant task. And as the article shows, India’s income-tax department is already overstretched. Officers complain of extensive unfilled vacancies among their ranks, a dismayingly slow process of promotions, cramped offices and out-of-date laptops.

One senior tax official said poor training and low skill requirements mean many tax officers don’t grasp the nuances of complex laws, causing them to ask for bribes instead of following through on investigations. Such officers are “very happy to take a bottle of liquor and close the case,” the official said.

A spokeswoman for the Central Board of Direct Taxes, which oversees the income-tax department, didn’t respond to emailed queries about corruption.

Although “Operation Black Money” was inaugurated just last week, tax officials have been receiving data on deposits since November. Not all large deposits of voided notes are suspect. Officers are working to exclude those made by cash-heavy businesses, such as wholesale grocers and digital-payment companies. Taxpayers who come clean about their hidden earnings and pay a penalty are also immunized from potential investigation—at least on the amount they declare.

That still leaves plenty of leads to pursue. In the first month after the cash cancellation, tax investigators found cash squirreled away in cars, unregistered safe-deposit boxes in banks—and, in one case, in boxes labeled as firecrackers. All told, between Nov. 9 and Jan. 10, the income-tax department seized $76 million in cash and identified $800 million in undeclared income, the Ministry of Finance said on Tuesday.

The big open question is whether the department will be able to nab all—or at least close to all—Indians who had been sheltering their earnings from the taxman. But there’s also the matter of whether it can do so without unduly bothering the innocent.

At a conclave in New Delhi last June, Mr. Modi urged the nation’s taxmen to heal their reputation for harassing taxpayers. The assembled officers were told to reduce litigation, move activities online and generally avoid administering by fear. They were also treated to a talk by best-selling novelist Chetan Bhagat on “Taxing With Love.”

Now, though, with the tax department under pressure to deliver on the shadow-money crackdown, some officers say they’re waiting for clearer instructions on how tightly to turn the screws—particularly on suspicious-looking deposits made by housewives, the elderly and the poor.

“The whole exercise has to be done very, very sensitively,” a tax official in Kolkata said.

The Central Board of Direct Taxes didn’t respond to queries about harassment.

Corrections and Amplifications: The photograph used to accompany this article was taken on Jan. 27, 2017. An earlier version of this article said it was taken on July 19, 2016.

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(via WSJ)