The Government has come out with the new version of the income disclosure scheme post de-monetization. This scheme seems to be the last chance for black money holders to come out clean.
Here, we examine the provisions of the new income disclosure scheme introduced post demonetisation.
The new scheme is called the Taxation and Investment Regime for Pradhan Mantri Garib Kalyan Yojana’ 2016
Que: How will the black money holders be taxed in the new scheme?
Ans: The provisions in respect of taxation of undisclosed income in the new scheme depend on whether the declaration is made voluntarily or the undisclosed income is caught by the Income Tax Deptt. :
- If a person makes the declaration voluntarily on his own
Any undisclosed income declared voluntarily under this scheme will attract tax @30% plus 33% surcharge on the amount of tax known as Pradhan Mantri Garib Kalyan Cess plus penalty equal to 10% of undisclosed income. This amounts to a total of 49.9% of undisclosed income which will have to be paid before filing declaration under the scheme.
Ques: What happens to the other 50% of the undisclosed income after paying taxes of 49.9% on the undisclosed income under scheme?
Ans: After payment of taxes under the new income disclosure scheme, the rest becomes clean income of the declarant. However, the following provisions apply to the other 50% of the amount declared under the scheme:
- The declarant will not be able to withdraw the whole of other 50% amount of undisclosed income.
- The declarant will have to deposit 25% of the undisclosed income in the Pradhan Mantri Garib Kalyan Deposit Scheme’2016. This deposit will be locked in for a period 4 years from the date of deposit. Also, this deposit will not carry any interest.
- This means that on declaration under the new scheme only 25% of the undisclosed income will be available for withdrawal by the declarant.
Ques: What is the taxation of income disclosed under the scheme with respect to computation of income for the current assessment year or any other assessment year?
Ans: Any amount declared under the scheme is separate income of the assessee. The income declared under the scheme will not be included in the total income of the declarant for any assessment year. Income declared under this scheme will be taxed separately as per the provisions of the scheme.
Ques: Whether the entire tax of 49.9% alongwith the deposit of 25% in the scheme shall be made before the declaration is made?
Ans: Yes, the Tax, surcharge and penalty shall be paid before making declaration under this scheme. Also, the deposit of 25% u/s 199F to be locked in under the Pradhan Mantri Deposit Scheme’2016 shall also be deposited before making the declaration under scheme.
The declaration shall accompanied by a proof of deposit of Tax, surcharge etc.
Ques: Whether any deductions will be allowed from the income declared under the scheme?
Ans: No deduction in respect of any expense, set-off of any loss or allowance shall be allowed against the income declared under the scheme. This means that the entire income declared under the scheme will be subject to tax @ 49.9%.
Ques: Who shall make the declaration?
Ans: The declaration shall be made by the person specified under section 140 of the Income Tax Act’1961.
Ques: Whether the declaration can be of income in the form of cash only?
Ans: As per section 199C, any person may make a declaration in respect of any income, in the form of cash or deposit in an account maintained by the person with any banking company or post office or RBI on or before 01.04.2017.
Ques: Will there be any refund of Tax, Surcharge or penalty paid under the scheme?
Ans: Tax, Surcharge and penalty paid shall not refundable under any circumstances.
Ques: Would the declaration affect any of my completed assessments?
Ans: Any undisclosed income declared under scheme shall be taxed separately as per the provisions of the scheme. The declaration shall not affect the finality of any completed assessments of the declarant for any of the previous assessment years.
Ques: What happens if a person makes a false declaration under scheme?
Ans: If a declaration is made by suppression or misrepresentation of facts or without payment of tax, surcharge etc., such declaration shall be void.
Ques: What happens if a person who has undisclosed income does not make a declaration under the scheme?
Ans: If a person who has undisclosed income fails to make a declaration under the scheme shall be subject to a very high rate of tax on being caught by the Income Tax Deptt. For this purpose, suitable amendments have been made under the Income Tax Act’1961
Amendment has been made to Section 115 BBE of the Income Tax Act, to tax persons who fail to make a declaration under the new scheme.
The persons who do not make a declaration under scheme if caught will be subject to a higher rate of tax of 60% of the Undisclosed Income.
Also, in addition to this the assessee will be subject to a surcharge of 25% on the amount of Tax payable (i.e 25% of 60%= 15%)
Also, a new section 271AAC has been inserted under Income Tax Act’ 1961, to levy a penalty of 10% on the tax payable i.e a penalty of 7.5% (10% of (60+15)%) will be levied if a person is caught.
The total tax burden of the person caught by the Income Tax deptt. who fails to make a declaration under the scheme shall be 82.5% of the Total undisclosed Income i.e 60%+15%+7.5%= 82.5%.
Ques: Can anybody apply for declaration under the scheme?
Ans: All persons having undisclosed income can apply in the scheme. However, the scheme does not apply to the following persons:
- The scheme does not apply to any undisclosed foreign income and foreign assets which is chargeable to tax under Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act’ 2015.
- In respect of any person on whom an order of detention has been made under the Conservation of Foreign Exchange and Prevention of smuggling Activities Act’1974.
- Any person notified under section 3 of the Special Court (Trial of offences Relating to transactions in Securities) Act’1992.
- The scheme does not apply to prosecution of offence punishable under Prevention of money laundering Act, Prohibition of Benami Property Transactions Act’1988, The Unlawful Activities (Prevention) Act, 1967, The Prevention of Corruption Act’1988, Certain offences under the Indian Penal Code.
Ques: To whom will the declaration under the scheme be made?
Ans: The declaration under the scheme shall be made to the Principal Commissioner or the Commissioner notified by the Central Government for this purpose.
Ques: What will happen if there is a search and seizure?
Ans: Section 271AAB has also been amended to levy a penalty in case of search and seizure cases as follows:
- 30% penalty on the undisclosed income will be leviable if the undisclosed income is admitted and the manner of deriving it is specified and is substantiated in the statement recorded u/s 132(4) and further the income is disclosed in the income tax return and the tax thereon has been paid.
- 60% penalty on the undisclosed income will be levied in all other cases.
Ques: For what purposes will the amount collected under the scheme be used?
Ans: The amount collected from the scheme is proposed to be utilised for the schemes of irrigation, housing, toilets, primary health, primary education, infrastructure etc. so that the money of the Black money hoarders can be used for the welfare of the poor.
(The author is the founder of youronlinefilings.com an online platform for filing income tax returns, company incorporation, accounting/bookkeeping, audits, Fema related compliances etc. He can be contacted at: firstname.lastname@example.org or email@example.com or Mobile: +91-9953199493)