Section 115BBE seems to be the biggest loophole in the Income Tax Act, 1961 whereby, any person can evade tax on concealed income of previous years by declaring such accumulated income as income of current financial year and paying tax @ 30%+surcharge+cess thereon (without causing any penalty, interest and prosecution).

Suppose people take disadvantage of this section in A.Y. 2017-18 (FY 2016-17) and government says nothing, then some people will again accumulate black money and will misuse this section say after 10 years again and in this way, it will continue to cause big leakage to government exchequer and will be the disincentive to people to be the honest tax payer.

So, it’s a requirement to change provisions of this section. Suggested drafting of that change is given below.

“In section 115BBE of the Income-tax Act, sub-section (1A) shall be inserted with effect from the 1st day of April, 2017 (i.e. w.e.f. AY 2017-18), which reads as under.

(1A) Notwithstanding anything contained in this Act, “at the rate of thirty per cent” referred in subsection 1(a) above, shall be replaced by “at the rate of fifty per cent” for Assessments Year 2017-18.”

“After section 69D of the Income-tax Act, the following section shall be inserted with effect from the 1st day of April, 2018 (i.e. w.e.f. AY 2018-19), namely:—.

69E Notwithstanding anything contained in this Act, aggregate amount determined under section 68, 69,69A and 69B of this Act, shall be deemed to be the income of such financial year (as referred to in said sections) and financial years preceding such financial year, in manner specified in example given below.

Example: Income of assesse, determined under section 68, is say Rs. 50,00,000/- and returned or assessed income (whichever is available at that point of time of assessment) of previous year and financial years preceding such previous year are as under.

F.Y. Returned / Assessed Income Allocation of Deemed income of Rs. 50,00,000/-
2017-18 25,00,000 25,00,000
2016-17 20,00,000 20,00,000
2015-16 15,00,000 5,00,000 (Remaining amount)
2014-15 10,00,000 0
Total 70,00,000 50,00,000

Appropriate changes should be made in section 147, 148 and 149 also.

Constitutional validity of these suggested changes can’t be challenged, as opportunity was already given in the form of Income Declaration Scheme 2016 to all assessees. Further, allowing escapement of tax in present section 115BBE modus operandi will be injustice to honest tax payers and tax payers who have declared under Income Declaration Scheme 2016. Not making injustice is making justice and in this way, these amendments will be the steps of justice in this new era of India after demonetization.

CA. Tejas K. Andharia

B. COM, F.C.A., D.I.S.A.(ICAI), D.I.R.M.(ICAI)
Bhavnagar, Gujarat
Email: tejasinvites@gmail.com

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7 responses to “Section 115BBE of Income Tax, 1961 requires Immediate change”

  1. Tax.Adv.B.S.K.Rao says:

    WHY BLAME ON ACCOUNTANTS WHO WERE HELPLESS TO CONVINCE CLIENTS AFTER DEMONETIZATION BECAUSE OF WRONG AMENDMENT MADE IN INCOME-TAX ACT ?
    ________________________________________
    The scheme announced by CBDT for black money during demonetization was not viable for the genuine reason, that nothing remains with the assessee. Income-Tax is a direct tax, paid out of the pocket of the assessee. Whereas Indirect tax is a collected tax & the assessee act in fiduciary capacity. Govt. definitely cannot take action for levy & recovery of direct tax in the lines of Indirect taxes. Our Central Govt. tried to squeeze the Tax Payer by amending Section 115BBE of Income-Tax Act which has forced the black money holders to choose the alternative route of converting the old currency to new currency just by paying 10% to 15% and all converted new currency went back to the original stage. In fact, Accountants have planned to offer such black money in this sections when clients approach them. If our Central Govt. might have not amended Section 115BBE of Income-Tax Act, definitely Govt. might have got huge money by way of tax. This was the mistake done by CBDT, Mr.Modi Ji should blame learned officials in CBDT who took decision to amend Section 115BBE of Income-Tax Act 1961 after demonetization & not the Accountants.
    ________________________________________

    B.S.K.RAO, B.Com, LL.B, MICA,
    Tax Advocate,
    BDKRAO, Beside SBI,
    Tilak Nagar, Shimoga-577201,
    Karnataka State, India
    Mo.No. : 9035089036
    E-Mail : raoshimoga@gmail.com

  2. Tax.Adv.B.S.K.Rao says:

    Our Central Govt. tried to squeeze the Tax Payer by amending Section 115BBE of Income-Tax Act which has forced the black money holders to chose the alternative route of converting the old currency to new currency just by paying 10% to 15% & all converted new currency went back to the original stage. In fact, Accountants have planned to offer such black money in this sections when clients approach them. If our Central Govt. might have not amended Section 115BBE of Income-Tax Act, definitely Govt. might have got huge money by way of tax. This was the mistake done by CBDT, Mr.Modi Ji should blame learned officials in CBDT who took decision to amend Section 115BBE of Income-Tax Act after demonetization & not the Accountants.

  3. Anil Kumar says:

    Only taxman can tax unexplained credits under Section 115 BBE . It is not a section for assessee to declare his concealed income. Assessee should know the source of the credits. If it is disproportionate to the known source of income for the year it leaves immense possibilities for the taxman.
    Secondly Government saying it is not going to investigate deposits in account upto 2,50,000 is absurd. In kannada there is a saying “You steal an elephant you are a thief. If you steal a small arecanut also you are a thief”. The Government has opened up the gates for money laundering.

  4. CA. TEJAS ANDHARIA says:

    After publication of this article. moneycontrol.com/news/economy/i-t-acts-section-115bbe-tweaks-wont-complicate-structure-pro_8022101.html

  5. Gaurav Agarwal says:

    115BE is prescribing only the rate at which “income tax” is payable by the assessee. penalty is still there for him under section 271(1)(c).

  6. TS Gupta says:

    Can you please say what is the percentage of honest tax payers. And do you meant to say that people should never become honest. The section 115BBE is introduced to harrass the person who wants to admit his undisclosed source. When taxman is intending to harrass the small tax payer who is taking the advantage of tax slabs with section 115BBE. Can’t the taxpayer take the advantage of that section?

  7. Shubham Jain says:

    You are absolutely right, and justice to the honest tax payers.

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