Black money holders get another chance to come clean with Income Tax Act changes


New Delhi: Errant tax payers have been given one more chance to come clean—to the benefit of the poor.

The government on Monday proposed another income disclosure scheme—less than two months after the closure of an earlier scheme—but on more stringent terms and entailing a higher compliance burden. Part of the money collected will be channelled into a fund for the welfare of the poor.

In the process, the government is giving people, left stranded after the government’s decision to declare Rs500 and Rs1,000 notes as illegal tender, another chance to voluntarily disclose their illegal income.

Also read: The initial impact of demonetisation in two charts

At the same time it is also mitigating the political fallout, especially claims that the move has hurt the poor.

The proposal is part of the taxation laws (second amendment) bill 2016, introduced in the Lok Sabha by finance minister Arun Jaitley; it includes the new ‘Pradhan Mantri Garib Kalyan Yojana, 2016’. The scheme is likely to run till 30 December, although there has been no formal communication on this.

The bill proposes amendments to the income-tax Act and the finance Act to plug existing loopholes which may have provided tax evaders a legitimate way of legalizing their black money.

The bill has been tabled as a money bill, ensuring it does not encounter the challenge of clearing the Rajya Sabha, where the government is in a minority.

Under the income disclosure scheme proposed by the government, the declarant can declare his undisclosed income, pay a tax of 30% and penalty of 10% on the undisclosed income and a surcharge called ‘Pradhan Mantri Garib Kalyan Cess’ of 33% on the tax, all of which totals up to around 50%.

In addition, the declarant will have to deposit 25% of undisclosed income in a zero-interest deposit scheme that will be called Pradhan Mantri Garib Kalyan Deposit Scheme, 2016. This money will be utilized for developmental activities such as irrigation, housing, construction of toilets and infrastructure, primary education and primary health.

In case the assessee does not declare the illegal income, the government proposes a tax burden of more than 80% and a stringent penalty in cases where such income has been unearthed through a search operation.

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Sudhir Kapadia, national tax leader at EY India, said the amendments will curb the ability of unscrupulous taxpayers to bend the rules of the ongoing demonetization scheme.

“This would have been possible under the recently amended general penalty provisions where for under-reported income, a penalty of 50% of tax was prescribed and for mis-reported income, a penalty of 200% of tax was prescribed. The concern was that if a taxpayer were to voluntarily declare unaccounted income in the ongoing fiscal year and include such unaccounted income as “unexplained” income in the tax return for the year, there may not arise any penalties as there would be no question of under-reporting or mis-reporting,” he said.

The proposed scheme does not provide any immunity against illegal activities.

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The disclosures will enjoy immunity from wealth tax, and civil and other taxation laws but there will be no immunity from the Prevention of Money Laundering Act, anti-corruption law, narcotics and the foreign black money law, said revenue secretary Hasmukh Adhia.

“If a taxpayer can substantiate that the cash deposits are from tax paid or accounted money then he should not be worried about these proposals. However, these proposals are going to increase the level of compliance burden for such taxpayers,” said Amit Singhania, partner at law firm, Shardul Amarchand Mangaldas and Co.


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