Apprehension of retrospective amendment in the Income Tax Act was anticipated by almost all the tax professionals as 200% penalty was not possible in the present framework of law.
Amidst all the debates & confusion and rising concerns that existing provision of the Income Tax Act-1961 could possibly be used for concealing black money, Taxation Laws (Second amendment) Bill-2016 is passed in the parliament. The bill seeks to amend in the Income Tax Act- 1961 so as to tax unaccounted deposits of cash in the wake of the demonetization scheme, as under:
1. Tax payable u/s 115BBE (leviable on income u/s 68, 69, 69A, 69B, 69C or 69D) increased from 30% to 60%. Surcharge on income taxable u/s 115BBE is also leviable @ 25% of tax payable. Effective tax rate for income assessable u/s 68, 69, 69A, 69B, 69C or 69D comes to 75%. Further, penalty @ 10% of tax payable u/s 115BBE could be levied under new section 271AAC. No penalty would be leviable if income is declared in return of income & tax is paid before the end of previous year. No penalty u/s 270A (for misreporting or underreporting of income) is leviable now.
2. Amendment to section 271AAB– Penalty where search initiated:
i. Penalty @ 30% where:
a] Undisclosed income admitted and manner of deriving income specified in the statement recorded u/s 132(4)
b] substantiates the manner in which the undisclosed income was derived
c] pay tax and declare such income in return of income.
ii. Penalty @ 60% in all other cases.
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PRADHAN MANTRI GARIB KALYAN YOJANA, 2016
In the wake of announcement of demonetization, few taxpayers were adopting dubious ways of converting their black money into white. A need was felt to harness this opportunity to generate additional revenue for the Government rather than letting black money holders find systemic loopholes to get around the currency ban. It has been done so by introducing “Taxation and Investment Regime for Pradhan Mantri Garib Kalyan Yojana-2016 (PMGKY)”. The purpose of scheme as stated in the Statement of Objects and Reasons accompanying the Taxation Laws (Second Amendment) Bill, 2016 is as under:
“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 (sic) 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. 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.”
Prominent feature of the PMGKY scheme is as under:
1. 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 a specified entity shall be chargeable to tax as under:
a] Tax @ 30% of income declared under scheme.
b] Pradhan Mantri Garib Kalyan Cess @ 33% of tax i.e., 9.90% of income declared
c] Penalty @ 10% of income declared under scheme.
Effectively, Total Tax + Surcharge + Penalty comes to 49.90%
2. 25% of income declared need to be deposited in ‘Pradhan Mantri Garib Kalyan Deposit Scheme, 2016’. No Interest is payable on the deposits. There would be a lock in period of 4 years on the amount of deposits.
3. Declaration under the scheme is to be filed before Pr. Commissioner or Commissioner to be notified.
4. Tax, Surcharge and Penalty is to be paid before filing of declaration.
5. Amount declared in the scheme shall not be included in total income of the declarant for any assessment year under income tax
Person with unaccounted money:
Law has been suitably amended with only two options- either avail the benefit of newly introduced PMGKY or alternatively pay the tax at around 80% of tax as mentioned above coupled with other related consequences.