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  • Note: The deposit shall bear no interest and the amount deposited shall be allowed to be withdrawn after four years from the date of deposit and shall also fulfil such other conditions as may be specified in the Pradhan Mantri Garib Kalyan Deposit Scheme,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


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: [email protected] 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.

More Under Income Tax


  1. T Satyanarayana says:

    Thanks: Navya Malhotra, for clarifying me. The NRI salary means all foreign earned income I didn’t show in Income returns. I filled only the indian generated income during tax returns. Even in this case also I fall under under-reporting or miss reporting of the income?

    The NSC and KVP were on my spouse name. I have done the gift formality.


    An NRI’s income taxes in India will depend upon his residential status for the year.

    If your status is ‘resident’, your global income is taxable in India. If your status is ‘NRI’, your income which is earned or accrued in India is taxable in India.

    Salary received in India or salary for service provided in India, income from a house property situated in India, capital gains on transfer of asset situated in India, income from Fixed Deposits or interest on savings bank account are all examples of income earned or accrued in India.

    These incomes are taxable for an NRI. Income which is earned outside India is not taxable in India. Interest earned on a NRE account and FCNR account is tax free. Interest on NRO account is taxable for an NRI.

    NRI or not, any individual whose income exceeds Rs.2,50,000 (for FY ending 31st March 2015 or Rs.2,00,000 for FY ending 31st March 2014) is required to file an income tax return in India.

    NRIs must file their returns when they:
    •want to claim a refund
    •have a loss that they want to carry forward

    Income from salary

    Your salary income is taxable when you receive your salary in India or someone does on your behalf. Therefore, if you are an NRI and you receive your salary directly to an Indian account it will be subject to Indian tax laws. This income is taxed at the slab rate you belong to.

    Income from Salary will be considered to arise in India if your services are rendered in India. So even though you may be an NRI, but if your salary is paid towards services provided by you in India, it shall be taxed in India.

    In case your employer is Government of India and you are the citizen of India, Income from salary if your service is rendered outside India is also taxed in India. Note that income of Diplomats, Ambassadors is exempt from tax.

    Deductions under section 80C

    Most of the deductions under section 80 are also available to NRIs. For FY 2014-15, a maximum deduction of up to Rs. 1,50,000 is allowed under section 80C from gross total income for an individual.

    Of the deductions under Section 80C, those allowed to NRIs are:
    • Life Insurance Premium Payment: The policy must be in the NRI’s name or in the name of their spouse or any child’s name (child may be dependent/independent, minor/majo r, or married/unmarried). The premium must be less than 10% of sum assured.
    • Children’s Tuition Fee Payment: Tuition fees paid to any school, college, university or other educational institution situated within India for the purpose of full time education of any two children (including payments for play school, pre nursery and nursery).
    • Principal Repayments on loan for purchase of house property: Deduction is allowed for repayment of loan taken for buying or constructing residential house property. Also allowed for stamp duty, registration fees and other expenses for purpose of transfer of such property to the NRI.
    • ULIPS or Unit Linked Insurance Plan: ULIPS sold with life insurance cover for deduction under Section 80C. Includes Contribution to Unit Linked Insurance Plan of LIC Mutual Fund e.g. Dhanraksha 1989 and contribution to Other Unit Linked Insurance Plan of UTI.
    • Investments in ELSS

    Deductions not allowed to NRIs

    Some Investments under Section 80C:
    •Investment in PPF are not allowed.
    (NRIs are not allowed to open new PPF accounts, however PPF accounts which are opened while they are a Resident are allowed to be maintained.)
    •Investments in NSCs
    •Post Office 5 Year Deposit Scheme
    •Senior Citizen Savings Scheme.

    NRIs can avoid double taxation (meaning: getting taxed on the same income twice in the country of residence and India) by seeking relief from Double Tax Avoidance Agreement between the two countries.

    Under DTAA, there are two methods to claim tax relief – exemption method and tax credit method.

    By exemption method, NRIs are taxed in only one country and exempted in another. In tax credit method, where the income is taxed in both countries, tax relief can be claimed in the country of residence.

    Now coming to your question!
    We will see, for TDS Liability being deducted under section 192, I.e. Any person responsible for payment of salary is liable to deduct tax at the slab rates of tax applicable to individual employees, for the financial year in which payment is made, in respect of income chargeable under the head ‘salaries’.
    Tax deduction under this section is required only at the time of actual payment of salary.

    Therefore, in case where an employer follows mercantile system of accounting and provides for salary on actual basis, tax shall not be deducted for under section 192 till such time salary is paid.

    If the salary income is not reported, then,

    it may attract 270A(1) Under-reporting and misreporting of income where
    A sum equal to 50% of the amount of tax payable on under-reported income.

    However, if under-reported income is in consequence of any misreporting thereof by any person, the penalty shall be equal to 200% of the amount of tax payable on under-reported income
    further, Prosecution under section 276C(1) Wilful attempt to evade tax, penalty or interest or under-reporting of Income (non-cognizable offence under section 279A)—

    (a) where tax sought to be evaded exceeds Rs. 1 lakh (Rs. 25 lakh w.e.f. 1-7-2012), then, Punishment of 6 months to 7 years and No limit for fine

    Further, interest under section 234A/B/C, whichever Is applicable will be imposed.

    Also, as discussed above NRI is not allowed to invest in NSC, KVP and Government Bonds etc.
    hence, it will fall in to the ambit of undisclosed income and the provisions discussed above may apply accordingly.

    (b) in other cases

    then, 3 months to 3 years (2 years w.e.f. 1-7-2012) and No limit for fine

  3. T Satyanarayana says:

    An NRI salaried person falling under NRI definition: If his salary is not disclosed under income tax returns and invested in NSC, KVP or government bonds. Is it black money?

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September 2021