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1. Evasion of taxes deprives the nation of critical resources which could enable the Government to undertake anti-poverty and development programmes. It also puts a disproportionate burden on the honest taxpayers who have to bear the brunt of higher taxes to make up for the revenue leakage. As a step forward to curb black money, bank notes of existing series of denomination of the value of five hundred rupees and one thousand rupees (hereinafter referred to as specified bank notes) issued by the Reserve Bank of India have been ceased to be legal tender with effect from the 9th November, 2016.

2. Concerns have been raised that some of the existing provisions of the Income-tax Act, 1961 could possibly be used for concealing black money. It is, therefore, important that the Government amends the Act to plug these loopholes as early as possible so as to prevent misuse of the provisions. The Taxation Laws (Second Amendment) Bill, 2016, proposes to make some changes in the Act to ensure that defaulting assessees are subjected to tax at a higher rate and stringent penalty provision.

3. In the wake of declaring specified bank notes as not legal tender, there have been representations and suggestions from 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 Thus, money coming from additional revenue as a result of the decision to ban Rs. 1000 and Rs. 500 notes can be utilised for welfare schemes for the poor.

4. Therefore, an alternative scheme namely, the ‘Taxation and Investment Regime for Pradhan Mantri Garib Kalyan Yojana, 2016‘ (PMGKY) is proposed to be provided 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, the declarant shall have to deposit 25% of undisclosed income in a Deposit Scheme to be notified by the Central Government in consultation with the Reserve Bank of India under the ‘Pradhan Man tri Garib Kalyan Deposit Scheme, 2016′. This amount is proposed to be utilised for the programmes of irrigation, housing, toilets, infrastructure, primary education, primary health, livelihood, etc.; so that there is justice and equality.

The Bill seeks to achieve the above objectives.

An overview of the amendments proposed in the Bill are placed below;

Overview of Amendments Proposed

General provision for penalty PENALTY (Section 270A)

Under-reporting – @50% of tax

Misreporting – @200% of tax

(Under-reporting/ Misreporting income is normally difference between returned income and assessed income)

No changes proposed
Provisions for taxation & penalty of unexplained credit, investment, cash and other assets TAX (Section 115BBE)

Flat rate of tax @30% + surcharge + cess

(No expense, deductions, set-off is allowed)


TAX (Section 115BBE)

Flat rate of tax @60% + surcharge @25% of tax (i.e. 15% of such income). So total incidence of tax is 75% approx.

(No expense, deductions, set-off is allowed)

PENALTY (Section 271AAC)

If Assessing Officer determines income referred to in section 115BBE, penalty @10% of tax payable in addition to tax (including surcharge) of 75%.

Penalty for search seizure cases 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

Penalty (271AAB)

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

(ii) 60% of income in any other case

Taxation and Investment Regime for Pradhan Mantri Garib Kalyan Yojana, 2016’ (PMGKY) New Taxation and Investment Regime Undisclosed income in the form of cash & bank deposit can be declared:

(A) Tax, Surcharge, Penalty payable

Tax @30% of income declared

Surcharge @33% of tax

Penalty @10% of income declared

Total @50% of income (approx.)

(B) Deposit

25% of declared income to be deposited in interest free Deposit Scheme for four years.


1. Clause 5 of the Bill seeks to insert a new section 199G, in respect of the Taxation and Investment Regime for Pradhan Mantri Garib Kalyan Yojana, 2016. The proposed section 199G provides that a declaration under section 1 99C 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.

2. The matters in respect of which rules may be made or notifications may be issued in accordance with the provisions of the Bill are matters of procedure and detail and it is not practicable to provide for them in the Bill.

3. The delegation of legislative power is, therefore, of a normal character.

Download Full Text Of The Taxation Laws (Second Amendment) Bill, 2016- Introduced In Lok Sabha By Finance Minister Arun Jaitley On 26.11.2016

Reaction quote from Riaz Thingna, Director, Grant Thornton Advisory Private Limited  on the Income Tax amendment bill 2016:

“The proposed amendment will lend some level of certainty on this contentious issue and will provide an acceptable route to enable defaulters to introduce their unaccounted cash into the productive economy. However, the government needs to provide clarity on immunity from other punitive actions for greater success.”

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  1. CA. M. Lakshmanan says:

    Instead of paying tax including penalty and Cess @49.90% of the income and applying for the new deposit scheme @ 25% of the income and depositing the balance, a comprehensive simple form can be introduced for depositing the whole amount in addition to the amount already deposited out of which 49.90% can be taken towards taxes and 25% towards the new deposit scheme and balance left in the account for withdrawal. This will also solve the problem of the depositors who have already deposited huge cash.f

  2. MILIND GOTHAL says:

    This shows how Chor mandali succeeded in making pressure on Government to safeguard their money earned by Black ways….
    thinking practically it was expected, however I personally believed that instead of 50% rate of tax shall have been 70% straight (No need of Deposit & increase clerical work)…..

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April 2024