Contrary to the suggestion made by the policy think tank of the Government of India i.e. Niti Aayog to introduce the Gold Amnesty Scheme (‘scheme’), it has now been reported that no such scheme is under consideration by the apex body of direct taxes.
The scheme proposed to exempt the levy of penalty, including interest on the undeclared gold, however, it is now being reported that the CBDT have rejected any such proposal. It is popularly believed amongst the revenue officials that the scheme would encourage back marketers to legitimise the unaccounted cash, which were converted into gold during the demonetisation period.
Traditionally, Indians are known to choose gold as its most popular mode of investment, primarily due its sentimental value, its ever-appreciating price, and also cause the same is considered to be the most liquid form of asset.
While the Government have cleared its intention of zero tolerance towards black money, there is no cause for any concerns for taxpayers who can provide an explanation of the source of investment in gold.
Previously, CBDT had issued a press release dated 1 December 2016, where it had clarified that there is no limit on holding gold jewellery or ornaments by anybody provided it is acquired from explained source of income including inheritance.
In addition to the aforementioned press release, CBDT previously have also issued an instruction with respect to operations involving search and seizure under section 132, where it was clarified that, gold within the prescribed limit cannot be seized even if prima facie, it does not seem to be matching the income records of the assessee. The limit prescribed is summarised as below:
1. Married lady – up to 500 gms.
2. Unmarried lady – up to 250 gms.
3. Male members – up to 100 gms
It may be noted that the officer conducting search has a discretionary power to not seize an even higher quantity of gold jewellery based on the factors viz. customs and traditions.
However, cases where the assessee is unable to provide a satisfactory explanation regarding the source of his investment in gold/jewellery, the revenue officer may be compelled to trigger the provision of section 69B read with section 115BBE.
By virtue of the aforementioned provision, the unexplained investment shall be deemed to be the income of the assessee for the relevant year and accordingly the taxpayer may be required to pay a higher rate of tax to be calculated @60 per cent of such unexplained investment.
It may also be noted that, the taxpayer shall not be eligible to claim any expenditure or allowance as deduction from such deemed income.
In addition, the taxpayer will also be required to pay surcharge @25 per cent of the tax amount plus education and health cess @4 per cent.
This would effectively mean a total tax calculated @77.25 per cent of such unexplained investments and an additional penalty @ 10 per cent under section 271AAC can be levied.
Considering the higher tax and penal payments prescribed, an adequate measure and safeguard on the part of the assessee is the need of the hour. Proper documentation of the source of income, receipt of gifts, etc. and maintenance of adequate audit trail, proper reporting of the investments in tax returns would go a long way in ensuring transparency and compliance on the part of the taxpayer.