The government plans to slap a 40 per cent flat tax on black money disclosed. According to a scheme that may be announced in the Budget, the balance 60 per cent will have to be parked in a special government security floated for this purpose.

North Block sources said Finance Minister P Chidambaram who introduced the voluntary disclosure of income scheme in 1997 is taking a close look at the proposal.

The dedicated security may not carry a coupon rate. At best, it can offer a nominal return with a maturity period of three to five years.

"If, at all, any interest is paid on the investment, it will be much less than the savings bank deposit rate of 3.5 per cent. The idea is not to reward tax evaders but to channel black money into the mainstream," the sources said.

At the end of the lock-in period, the assessee will be allowed to bring in the funds into the banking system (as deposits) and no tax will be charged on that money.

The government expects to mobilise around Rs 20,000 crore (Rs 200 billion) through this scheme. It is also taking a close look at the possible use of the funds. As these are not long-term funds, the money thus raised could not be used for infrastructure development, sources said.