A bird’s eye view on Taxation Laws (Second Amendment) Bill, 2016

Navya Malhotra

To bring more clarity and to capture the possible concealing black money, The Taxation Laws (Second Amendment) Bill, 2016 (‘the Bill’) has been introduced in the Parliament to amend the provisions of the Act to ensure that defaulting assessees are subjected to tax at a higher rate and stringent penalty provision.

> Purpose of the Amendment?

As suggested by experts that instead of allowing people to find illegal ways of converting their black money into black again, the Government should give them an opportunity to pay taxes with heavy penalty and allow them to come 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.

> What is the proposed scheme?

Scheme namely, ‘Taxation and Investment Regime for Pradhan Mantri Garib Kalyan Yojana, 2016’ (PMGKY) has been proposed in the Bill.

The declarant under this regime shall be required to pay tax @ 30% of the undisclosed income, and penalty @10% of the undisclosed income. Further, a surcharge to be called ‘Pradhan Mantri Garib Kalyan Cess’ @33% of tax is also proposed to be levied. In addition to tax, surcharge and penalty (totaling to approximately 50%), 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’.

For instance, an assessee has an undisclosed income of INR 10 crores in the form of cash & bank deposit can be declared. Under this scheme, the assesse shall be liable to pay the following:

Particulars	Amount (INR)
A:Undisclosed income	100,000,000
B: Tax@ 30% of (A)	30,000,000
C: Pradhan Mantri Garib Kalyan Cess @ 33.33% of (B)	9,999,000
D: Penalty @10% of (A)	10,000,000
Total (B+C+D)	49,999,000
Percentage of tax burden	49.999%

Total amount to be deposited in Pradhan Mantri Garib Kalyan Deposit Scheme, 2016 is atleast INR 25,000,000 i.e. 100,000,000 x 25%.

• Note: The deposit shall bear no interest and the amount deposited shall be allowed to be withdrawn after four years from the date of deposit and shall also fulfil such other conditions as may be specified in the Pradhan Mantri Garib Kalyan Deposit Scheme, 2016.

> Purpose and utilisation of such deposits?

This amount is proposed to be utilised for the schemes of irrigation, housing, toilets, infrastructure, primary education, primary health, livelihood, etc., so that there is justice and equality.

> Scheme not to apply to certain persons.

(a) In relation to any person in respect of whom an order of detention has been made under the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974

(b) In relation to prosecution for any offence punishable under Chapter IX or Chapter XVII of the Indian Penal Code, the Narcotic Drugs and Psychotropic Substances Act, 1985, the Unlawful Activities (Prevention) Act, 1967, the Prevention of Corruption Act, 1988, the Prohibition of Benami Property Transactions Act, 1988 and the Prevention of Money-Laundering Act, 2002

(c) to any person notified under section 3 of the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992

(d) In relation to any undisclosed foreign income and asset which is chargeable to tax under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015

• Proposed Text (Bare Form):

Introduction of section 199C to The Income Tax Act, 1961

Subject to the provisions of this Scheme, any person may make, on or after the date of commencement of this Scheme but on or before a date to be notified by the Central Government in the Official Gazette, a declaration in respect of any income, in the form of cash or deposit in an account maintained by the person with a specified entity, chargeable to tax under the Income-tax Act for any assessment year commencing on or before the 1st day of April, 2017.

> Amendment to Section 115BBE

Where the total income of an assesse, includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D and reflected in the return of income furnished under section 139

or,

determined by the Assessing Officer includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D, if such income is not covered above.

Then, Income tax shall be the aggregate of-

I) the amount of income-tax calculated on the income referred above @ 60% and

II) the amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the amount of income referred to in clause (I).

III) surcharge on (I) above, calculated @ 25% of Tax (i.e. 15% of such income).

> Insertion of new section 271AAC: Penalty in respect of certain income.

The Assessing Officer may, notwithstanding anything contained in this Act other than the provisions of section 271AAB, direct that, in a case where the income determined includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D for any previous year, the assessee shall pay by way of penalty, in addition to tax payable under section 115BBE, a sum computed at the rate of ten per cent of the tax payable under clause (i) of sub-section (1) of section 115BBE.

Provided that no penalty shall be levied in respect of income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D to the extent such income has been included by the assessee in the return of income furnished under section 139 and the tax in accordance with the provisions of clause (i) of sub-section (1) of section 115BBE has been paid on or before the end of the relevant previous year.

For Instance,

Particulars	Amount (INR)
A:Income under section 68/69/69A/69B/69C/69D	100,000,000
B: Tax@ 60% of (A)	60,000,000
C: Surcharge @ 25% of (B)	15,000,000
D: Penalty @10% of (B + C), if income not filed in the return under section 139 and determined by AO	7,500,000
Total (B+C+D)	82,500,000
Percentage of tax burdern	82.5%

> Amendment of section 271AAB

• Existing:

Penalty (271AAB)

(i) 10% of income, if admitted, returned and taxes are paid

(ii) 20% of income, if not admitted but returned and taxes are paid

(iii) 60% of income in any other case

• Proposed:

Penalty (271AAB)

(i) 30% of income, if admitted, returned and taxes are paid

(ii) 60% of income in any other case

Miscellaneous Provisions

1. No deduction in respect of any expenditure or allowance or set-off of any loss shall be allowed against the income in respect of which a declaration is made.

2. A declaration under sub-section (1) of section 199C shall be made by a person competent to verify the return of income under section 140 of the Income-tax Act, to the Principal Commissioner or the Commissioner notified in the Official Gazette for this purpose and shall be in such form and verified in such manner, as may be prescribed.

3. The tax and surcharge payable under section 199D and penalty payable under section 199E in respect of the undisclosed income, shall be paid before filing of declaration under sub-section (1) of section 199C.

4. The declaration under sub-section (1) of section 199C shall be accompanied by the proof of deposit referred to in sub-section (1) of section 199F, payment of tax, surcharge and penalty.

5. The amount of undisclosed income declared in accordance with section 199C shall not be included in the total income of the declarant for any assessment year under the Income-tax Act.

6. Undisclosed income declared not to affect finality of completed assessments.

7. Any amount of tax and surcharge paid under section 199D or penalty paid under section 199E shall not be refundable.

8. Declaration not admissible in evidence against declarant.

9. Declaration by misrepresentation of facts to be void.