CMA. Ramlakhan Ahirwar & Pooja Suryawanshi
Offering one last window to black money holders, the government has come out with a scheme giving black money holders time until March-end to come clean by paying 50 per cent tax on bank deposits of junk currencies made post demonetization. The scheme called “PRADHAN MANTRI GARIB KALYAN YOJANA (PMGKY)” came into effect from 17TH December 2016. It will remain open until March 31, 2017. PMGKY is Union Government’s second income disclosure scheme (IDS) to allow tax evaders with unaccounted wealth to come clean.
Any person can make declaration in respect of undisclosed income in the form of cash or deposits in an account with bank or post office or specified entity. DECLARANT of undisclosed income needs to pay 30% tax, 10% penalty and 33% “(PMGKY)” Surcharge on the tax, all of which add up to around 50%. Besides, DECLARANT must make mandatory deposit of minimum 25% of undisclosed income in the zero-interest “(PMGKY)” Deposit Scheme, 2016 with lock-in period of 4 years. The Principal CIT/CIT shall issue an acknowledgement in Form-2 to the DECLARANT within 30 days from the end of the month in which the declaration under Form-1 is made. The income declared under it will not be included in the total income of the DECLARANT under the Income-tax (IT) Act for any assessment year. A table to explain this is given below
Declarations made under it will be kept confidential and shall not be admissible as evidence under any Act (ex. Central Excise Act, Companies Act etc.). However, DECLARANT will have no immunity under Criminal Acts mentioned in section 199-O of the Scheme. Non declaration of undisclosed cash or deposit in accounts under this Scheme will render tax, surcharge and cess totaling to 77.25% of such income, if declared in the return of income. In case the same is not shown in the return of income a further penalty @10% of tax shall also be levied followed by prosecution.
Although the intentions of the government are benevolent, one can’t deny that the scheme’s loopholes can be prone to misuse by unscrupulous people. For instance, there is no provision for inquiring into the source of funds which may prove to be ineffective in curbing black money. The amendment is being termed as retrospective as the government is imposing penalty with effect from April 1, 2016. It may be unfruitful as there’s no immunity from wealth tax, black money laws, etc. Many holders of unaccounted wealth already got their money exchanged in HAWALA schemes like 60:40, etc and so might not avail this facility. Government earlier said that IDS is the last opportunity for people having black money so some feel that the guilty should not be given any other opportunity. Also after 4 years government may change and may divert these funds collected. A Committee should be formulated to take care of these funds which include ruling party, opposition and RBI governor so that stringent check will be kept on this money.
This scheme will become more effective if undisclosed property is also included. Holistic measures like proper scanning of income deposited post demonetization, transparency in real estate transactions, stricter IT laws and expedite judicial proceedings are needed against under reporting of wealth and cracking down on money laundering in war against black money.
The positive aspect of this scheme is that it allows people with black money to come clean and create a massive fund which government can use to fund several social schemes. The money or revenue generated from disclosure of unaccounted cash will be used for Projects in Irrigation, Infrastructure, Primary education, Primary health, Housing, Toilets and livelihood so that there is justice and equality. This can prove to be effective in redistribution of income from the rich to the poor.
We, as Cost Accountants, can use this perfectly legal and ethical way to help out our erring clients instead of supporting and advising them in their illegal methods to conceal black money. If done in right spirit, our practicing professionals can contribute greatly to Nation Building by spreading awareness about the importance of being tax compliant and we can also bring more people in the formal economy.
Also, now that people are aware about the seriousness of government, it is expected they will declare the unaccounted money and not use other ways to turn it into white. If this money gets absorbed into economy, it will certainly give boost economic development. PMGKY can be an effective scheme if it serves its purpose.
For more details kindly visit –
1. incometaxindiaefiling.gov.in, 2.www.incometaxindia.gov.in