Following the announcement of declaring specified bank notes “as not legal tender”, it is felt that instead of allowing people to find illegal ways of converting their black money into black again, it is better to give them an opportunity to pay taxes and allow them to make their money clean so that not only the Government gets additional revenue for undertaking activities for the welfare of the poor but also the remaining part of the declared income legitimately comes into the formal economy. Keeping this spirit in mind, Income tax Amendment bill has been issued giving one more chance to people to exchange their black money lying in demonetized form
In this backdrop, Finance Minister Arun Jaitley introduced a Income Tax Amendment Bill in Lok Sabha on Monday. 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.A scheme namely, ‘Taxation and Investment Regime for Pradhan Mantri Garib Kalyan Yojana, 2016’ (PMGKY) has been proposed in the bill.
- Under this scheme, people can deposit money in their accounts by paying 50 per cent of the total amount – 30 percent as tax, 10 percent as penalty and 33 percent of the taxed amount (10 percent of total amount) as Garib Kalyan Cess.
- In addition to tax, surcharge and penalty, the declarant shall have to deposit 25% of undisclosed income in a Deposit Scheme to be notified by the RBI under the ‘Pradhan Mantri Garib Kalyan Deposit Scheme, 2016.’
- This amount is proposed to be utilized for programs of housing, toilets, irrigation, infrastructure, primary education, primary health, livelihood etc. so that there is justice and equality.
It is been said that 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. Deposits which have been already made from November 10 will be covered under PMGKY. Last date will be notified 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.
Overview of Amendments Proposed
a) No changes are proposed for General Penalty Provisions under Section 270A of Penalty of 50% of tax for under reporting & Penalty of 200% of tax for Misreporting of Income. Under-reporting/ Misreporting income is normally difference between returned income and assessed income.
b) Presently under section 115BBE (Provisions for taxation & penalty of unexplained credit, investment, cash and other assets), there is Flat rate of tax @30% plus surcharge and cess. It is proposed to be increased to a Flat rate of tax @60% plus surcharge @25% of tax. So total incidence of tax is 75% approx.
Further, penalty @10% of tax payable under section 271AAC is also proposed to be levied if Assessing Officer determines income referred to in section 115BBE, in addition to tax (including surcharge) of 75%.
c) The present Penalty under section 271AAB (Penalty for search seizure cases) 10% of income, if admitted, returned and taxes are paid is proposed to be increased to 30%.
d) Also, a new ‘Taxation and Investment Regime for Pradhan Mantri Garib Kalyan Yojana 2016’ (PMGKY) is proposed in which Undisclosed income in the form of cash& bank deposit can be declared on which:
Tax, Surcharge, Penalty payable
Tax @30% of income declared
Surcharge @33% of tax
Penalty @ 10% of income declared
Total @50% of income (approximately)
Deposit: 25% of declared income to be deposited in interest free Deposit Scheme for four years