Offering yet another opportunity for black money holders to come clean and legalise their wealth, the Government on Monday proposed a 50 per cent tax, cess and penalty on deposit of the unaccounted money in the form of scrapped high-value currency notes. By all accounts, this is similar to the recently expired Voluntary Disclosure Scheme under which anyone could convert his black money into white by paying a penalty of 45 per cent.
Under a proposed new law which will provide a major relief for those sitting on massive unaccounted notes of Rs 500 and Rs1,000, the Government will charge a 30 per cent tax, a 10 per cent penalty and a 33 per cent surcharge on Income Tax (around ten per cent of the total amount) over deposit of the demonetised money. It has also proposed to tax at 50 per cent the unaccounted cash if disclosed voluntarily till December 30, after which the undisclosed cash holders will be levied a steep up to 85 per cent tax and penalty if discovered by the tax authorities.
The Taxation laws (Second Amendment) Bill, 2016, introduced on Monday in the lok Sabha by Finance Minister Arun Jaitley, nearly three weeks after Prime Minister Narendra Modi banned high-value denomination currency notes, also provides for immunity from being questioned on the source of funds. The Government also said that in addition to tax surcharge and penalty, the declarant would have to deposit 25 per cent of undisclosed income in a welfare programme — Pradhan Mantri Garib Kalyan Deposit Scheme, 2016 and this amount will have a four-year lock-in period. The Government hopes that the proposed law will boost up its tax collection and bring in huge money for use for four years without paying any interest.
“The Taxation laws (Second Amendment) Bill, 2016, proposes to make some changes in the Act to ensure that defaulting assessees are subjected to tax at a higher rate and stringent penalty provision,” Jaitley said in the Bill.
Interestingly, the Bill has been brought in as a ‘Money Bill’ requiring consent of the lok Sabha alone. Experts have hailed the new VDS. “The amendments are progressive in nature and puts to rest to the uncertainty on the penalties on the amounts deposited in bank accounts post announcement of demonetisation,” KPMG (India) Partner and Head of tax Girish Vanvari told the PTI.
“This amendment appears to be very strategic and could be a win-win, because if everything goes well, tax collections will go up substantially, further money will be raised in specified bonds for country’s investments needs and the assessee would also retain 25 per cent of his undisclosed income to himself for future use,” Vanvari said.
“This amount will be utilised for irrigation, housing, toilets, infrastructure, primary education, primary health, livelihood, etc; so that there is justice and equality,” said Jaitley.
However, Revenue Secretary Hasmukh Adhia said that the disclosures in PMGKY scheme will ensure that no questions will be asked about the source of fund. “It would ensure immunity from Wealth Tax, civil laws and other taxation laws. But there is no immunity from FEMA, PMlA, Narcotics, and Black Money Act,” he told the reporters later.
The Bill proposes to amend Section 115BBE of the Income Tax Act to provide for a steep 60 per cent tax and a 25 per cent surcharge on it (total 75 per cent) for black money holders who choose to disclose after PMGKY ends. Another section inserted provides for an additional 10 per cent penalty on being established that the undeclared wealth is unaccounted or black money, taking the total incidence of levies to 85 per cent.
The scheme comes within two months of the close of domestic black money disclosure scheme wherein the total incidence of tax was 45 per cent. A total of Rs 65,250 crore in black money was brought to book by the close of the scheme on September 30. “We have seen that some people were trying to convert black money to black again by using new currency,” Adhia said, adding that the provision has been amended to bring 75-85 per cent tax.
“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 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 form economy,” the Statement of Objects and Reasons of the Bill said.
For those who continue to hold onto undisclosed cash and are caught, existing provisions of the Income Tax law will be amended to provide for a flat 60 per cent tax plus a surcharge of 25 per cent of tax (15 per cent), which will amount a levy of 75 per cent. Besides, if the assessing officer decides he can charge a 10 per cent penalty in addition to the 75 per cent tax. Under the new Pradhan Mantri Garib Kalyan Yojana, besides 50 per cent tax, surcharge and penalty, a quarter of the declared income will be to be deposited in interest free deposit scheme for four years.
Deposits which have been already made from November 10 will be covered under PMGKY. “last date we will notify after the bill is passed but it is likely to be December 30. PMGKY will come in as a new Chapter 9 in Finance Act 2016,” Adhia said.