The NDA Govt led by Narendra Modi on Monday Nov 28,2016 sought to bring to tax all unaccounted money that was flowing into the banking system following the demonetisation announcement on November 08,2016
Finance Minister Arun Jaitley introduced a Bill in Lok Sabha for this purpose.
The Centre has now come out with Pradhan Mantri Garib Kalyan Yojana 2016
to enable people with undisclosed income to come clean.
However, they would have to fork out a tax of 30 per cent and penalty of
10 per cent. A surcharge in the form of cess of 33 per cent will have
to be paid on the tax.
In addition to tax, surcharge and penalty, the declarant will have to
deposit 25 per cent of undisclosed income in a deposit scheme to be
notified by the Centre in consultation with the RBI.
This amount is proposed to be utilised for programmes of irrigation,
housing, toilets, infrastructure, primary education, primary health,
livelihood etc, so that there is justice and equality.
A 75 per cent tax and 10 per cent penalty in case Income Tax authorities
detect undisclosed wealth deposited post demonetisation.
The current provisions of penalty on under-reporting of income at 50 per
cent of the tax, and misreporting (200 per cent of tax) will remain and
no changes are being made to them.
Under-reporting/misreporting income is normally difference between returned income and assessed income.
The Taxation Laws (Second Amendment) Bill, 2016 proposes to amend
Section 115BBE of the Income Tax Act to provide for a punitive tax,
surcharge and penalty on unexplained credit, investment, cash and other
assets.
Against current provision of 30 per cent flat tax rate plus surcharge
and cesss, a steep 60 per cent tax will be levied on such income
together with 25 per cent surcharge of tax (15 per cent of such income).
So total incidence of tax will be 75 per cent with no expense,
deductions or set-off allowed.
Also, the assessing officer can levy an additional 10 per cent penalty, taking the total tax incidence to 85 per cent.
The current provisions for penalty in cases of search and seizure are
proposed to be amended to provide for a penalty of 30 per cent of income
if it is admitted, returns filed and taxes paid. In all other cases, 60
per cent will be the penalty.
Currently, the penalty is 10 per cent of the income, if the income is
admitted, returned and taxes are paid. Penalty is at 60 per cent in all
other cases.
Revenue Secretary Hasmukh Adhia said the deterrent provisions were
necessary so that people have the fear of hoarding black money.
“The disclosures in PMGKY scheme will ensure that no questions will be
asked about the source of fund. It would ensure immunity from wealth
tax, civil laws and other taxation laws. But there is no immunity from
FEMA, PMLA, Narcotics, and black money act,” he said.
Deposits which have been already made from November 10 will be covered
under PMGKY. “Last date we will notify after the bill is passed but it
is likely to be December 30. PMGKY will come in as a new Chapter 9 in
Finance Act 2016,” he said.
Q. What is the new scheme?
A. The government has proposed that the people holding black money can declare their black money and pay almost 50 percent of income as tax & penalty.
Q. Is there anything else I have to pay?
A. Apart from 50 percent tax and penalty, you will have to deposit 25 percent of declared income in interest-free Deposit Scheme for four years. This would essentially mean that you immediately get 25 percent of the declared amount in the form of white money.
Q. How has the government arrived at the figure of 50 percent?
A. The government has decided to levy 30 percent as tax on undisclosed income. On this 30 percent, one has to pay 33 percent as a surcharge and 10 percent of the declared amount will be charged as penalty. This would mean you will have to pay 49.9 percent.
Q. Why this scheme?
A. The government was getting a feedback of a lot of black money conversion through illegal routes. This proposal would give an opportunity to people to come clean and in turn, the government will also get additional revenue. Apart from this, IT Authorities had also brought to the knowledge of government that there are existing provisions in the IT Act that could be used for concealing black money.
Q. What if I had submitted below 2.5 lakh rupees in my bank account?
A. Under the Income tax act, income up-to 2.5 lakh is exempt from tax. However, if you have given your account for hoarding of black money, you can land into trouble
Highlights of the proposed amendment to tax laws
1. According to the proposed amendment, if the declarant comes clean on his undisclosed income he/she shall be required to pay tax at 30 per cent of the undisclosed income and penalty at 10 per cent of and a surcharge of 33 per cent.
2. This comes around to an effective tax rate of around 50 per cent, say tax experts.
3. This is higher than the 45 per cent tax rate that was charged under the Income Disclosure Scheme, 2016, which provided a one-time opportunity to domestic black money holders to disclose wealth and come clean. The Income Disclosure Scheme was open from June to September.
4. The surcharge will be called 'Pradhan Mantri Garib Kalyan Cess'.
5. In addition, to tax surcharge and penalty, the declarant shall have to deposit 25 per cent of undisclosed income in a scheme to be notified by the central government under Pradhan Mantri Garib Kalyan Deposit Scheme, 2016'.
6. The deposit shall earn no interest and the amount deposited shall be allowed to be withdrawn only after 4 years of deposit.
7. This amount is proposed to be utilised for the programmes of irrigation, housing, toilets, infrastructure, primary education, primary health, livelihood, etc.
8. For those who continue to hold onto undisclosed cash and are caught by tax authorities, the tax rate could go up to 85 per cent.
9. Revenue Secretary Hasmukh Adhia said the deterrent provisions were necessary so that people have the fear of hoarding black money.
10. Deposits which have been already made from November 10 will be covered under Pradhan Mantri Garib Kalyan Deposit Scheme
All You Need to Know About NDA Govt's Latest Tax Proposals on Black Money
Q. What is the new scheme?
A. The government has proposed that the people holding black money can declare their black money and pay almost 50 percent of income as tax & penalty.
Q. Is there anything else I have to pay?
A. Apart from 50 percent tax and penalty, you will have to deposit 25 percent of declared income in interest-free Deposit Scheme for four years. This would essentially mean that you immediately get 25 percent of the declared amount in the form of white money.
Q. How has the government arrived at the figure of 50 percent?
A. The government has decided to levy 30 percent as tax on undisclosed income. On this 30 percent, one has to pay 33 percent as a surcharge and 10 percent of the declared amount will be charged as penalty. This would mean you will have to pay 49.9 percent.
Q. Why this scheme?
A. The government was getting a feedback of a lot of black money conversion through illegal routes. This proposal would give an opportunity to people to come clean and in turn, the government will also get additional revenue. Apart from this, IT Authorities had also brought to the knowledge of government that there are existing provisions in the IT Act that could be used for concealing black money.
Q. What if I had submitted below 2.5 lakh rupees in my bank account?
A. Under the Income tax act, income up-to 2.5 lakh is exempt from tax. However, if you have given your account for hoarding of black money, you can land into trouble
Highlights of the proposed amendment to tax laws
1. According to the proposed amendment, if the declarant comes clean on his undisclosed income he/she shall be required to pay tax at 30 per cent of the undisclosed income and penalty at 10 per cent of and a surcharge of 33 per cent.
2. This comes around to an effective tax rate of around 50 per cent, say tax experts.
3. This is higher than the 45 per cent tax rate that was charged under the Income Disclosure Scheme, 2016, which provided a one-time opportunity to domestic black money holders to disclose wealth and come clean. The Income Disclosure Scheme was open from June to September.
4. The surcharge will be called 'Pradhan Mantri Garib Kalyan Cess'.
5. In addition, to tax surcharge and penalty, the declarant shall have to deposit 25 per cent of undisclosed income in a scheme to be notified by the central government under Pradhan Mantri Garib Kalyan Deposit Scheme, 2016'.
6. The deposit shall earn no interest and the amount deposited shall be allowed to be withdrawn only after 4 years of deposit.
7. This amount is proposed to be utilised for the programmes of irrigation, housing, toilets, infrastructure, primary education, primary health, livelihood, etc.
8. For those who continue to hold onto undisclosed cash and are caught by tax authorities, the tax rate could go up to 85 per cent.
9. Revenue Secretary Hasmukh Adhia said the deterrent provisions were necessary so that people have the fear of hoarding black money.
10. Deposits which have been already made from November 10 will be covered under Pradhan Mantri Garib Kalyan Deposit Scheme
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