Pradhan Mantri Garib Kalyan Yojna: Last Chance for Black Money Holders

TAXATION LAWS (SECOND AMENDMENT) BILL 2016 – Introduced in Lok Sabha on 28.11.2016, Passed in Lok Sabha on 29.11.2016

OBJECT OF BILL

  • The existing provisions of  IT Act, 1961 can possibly be used for concealing black money. Thus, to ensure that defaulting assessees are subjected to tax at a higher rate and stringent penalty provision, it is proposed to amend the existing provisions of the Act.
  • In the wake of declaring specified bank notes “as not legal tender”, instead of allowing people to find illegal ways of converting their black money into black again, an opportunity is given to pay taxes with heavy penalty and 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.
  • The amount is proposed to be utilised for the schemes of irrigation, housing, toilets, infrastructure, primary education, primary health, livelihood, etc., so that there is justice and equality.

TAXATION AND INVESTMENT REGIME FOR PRADHAN MANTRI GARIB KALYAN YOJNA, 2016

Introduced as Chapter IXA of Finance Act, 2016 (Sec.199A to 199R)

PERIOD OF SCHEME

It shall come into force on such date as the CG may by notification in the Official Gazette appoint and continue till the date notified by the CG in the Official Gazette.

SCOPE OF SCHEME (Sec.199C)

  • A declaration may be made by any person in respect of any income

   – in the form of cash or

   – deposit in an account maintained with a specified entity

chargeable to tax under the IT Act for any AY commencing on or before 01.04.2017.

  • No deduction in respect of any expenditure or allowance or set-off of any loss shall be allowed against the income in respect of which declaration under this section is made.
  • Specified entity mean:-

   – Reserve Bank of India

   – Banking company or co-operative bank to which Banking Regulation Act, 1949 applies

   – Head Post Office or Sub-Post Office

   – Any other entity as may be notified by the CG in the Official Gazette

RATE OF TAX, SURCHARGE & PENALTY (Sec.199D & 199E)

The undisclosed income declared within the time specified shall be chargeable to

  • tax @ 30% of the undisclosed income
  • surcharge @ 33% of tax, to be called ‘Pradhan Mantri Garib Kalyan Cess’ for welfare of economically weaker sections of society
  • penalty @ 10% of the undisclosed income
READ  Depreciation Companies Act

Thus, the undisclosed income would be taxed at 49.9%.

DEPOSIT OF UNDISCLOSED INCOME (Sec.199F)

  • The person making declaration shall deposit 25% of undisclosed income in Pradhan Mantri Garib Kalyan Deposit Scheme, 2016.
  • The deposit shall bear no interest.
  • The deposit will have lock in period of 4 years from the date of deposit.

MANNER OF DECLARATION (Sec.199G)

  • A declaration shall be made by a person competent to verify the return of income u/s 140 of IT Act to the PCIT or CIT notified in the Official Gazette and shall be in such form and verified in such manner as may be prescribed.

PAYMENT OF TAX, SURCHARGE, PENALTY AND DEPOSIT (Sec.199H)

  • Tax, surcharge & penalty shall be paid before filing of declaration.
  • The amount to be deposited shall be deposit before filing of declaration.
  • The declaration shall be accompanied by the proof of payment of surcharge, tax & penalty and proof of deposit.

UNDISCLOSED INCOME NOT BE INCLUDED IN TOTAL INCOME (Sec.199I)

The undisclosed income declared under this scheme shall not be included in total income for any AY under the head.

UNDISCLOSED INCOME NOT TO AFFECT THE FINALITY OF ASSESSMENT (Sec.199J)

The declarant under the scheme shall not be entitled to reopen any assessment or reassessment under the IT/WT Act or to claim any set off in relation to such assessment or reassessment.

TAX ETC. NOT REFUNDABLE (Sec.199K)

Any amount of tax, surcharge & penalty paid under the scheme shall not be refundable.

DECLARATION NOT ADMISSIBLE IN EVIDENCE (Sec.199L)

Declaration shall not be admissible in evidence against declarant for the purpose of any proceeding under any Act other than the Acts mentioned in Sec.199O.

INVALID DECLARATION (Sec.199M)

Where declaration has been made by:-

  • misrepresentation or suppression of facts or
  • without payment of tax, surcharge & penalty or
  • without depositing the amount in the Deposit Scheme

such declaration shall be void and shall be deemed never to have been made.

NON OPERATION OF SCHEME (Sec.199O)

The declaration scheme shall not be application in relation to

  • any person in respect of whom detention order has been made under the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974,
  • prosecution for any offence punishable under Indian Penal Code, Narcotic Drugs and Psychotropic Substances Act, 1985, Unlawful Activities (Prevention) Act, 1967, Prevention of Corruption Act, 1988, Prohibition of Benami Property Transactions Act, 1988, Prevention of Money Laundering Act, 2002
  • any person notified u/s 3 of Special Court Act, 1992
  • any undisclosed foreign income and assets which is chargeable to tax under Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015
READ  CBDT Clarified Cases where Interest u/s 201(1A)(i) for Late Deduction of TDS May be Waived

BENEFIT, CONCESSION AND IMMUNITY UNDER THE SCHEME (Sec.199P)

Not available to any person other than the person making the declaration.

AMENDMENT IN EXISTING PROVISIONS

Section Particulars Existing Provisions Proposed Provisions
115BBE

(w.e.f. 1.4.2017, i.e. AY 2017-18)

Income referred u/s 68, 69, 69A, 69B, 69C, 69D If total income does not exceed Rs.1 crore

Tax @ 30% + cess @ 3% of tax (i.e. 0.9% of income). Thus, total incidence of tax is 30.9%.

If total income exceed Rs.1 crore

Tax @ 30% + Surcharge @ 15% of tax (i.e. 4.5% of income) + cess @ 3% of tax & surcharge (i.e. 1.035% of income). Thus, total incidence of tax is 35.54%.

If income is declared in  the return of income furnished u/s 139 & tax has been paid before end of relevant PY

Tax @ 60% + surcharge @ 25% of tax (i.e. 15% of income) irrespective of the quantum of income + cess @ 3% of tax & surcharge (i.e. 2.25% of income). Thus, total incidence of tax is 77.25%.

If income is added by AO

In addition to tax, penalty @ 10% of tax payable (i.e. 6% of income) u/s 271AAC would be levied. Thus, total incidence of tax & penalty is 83.25%.

*No penalty u/s 270A will be imposed.

  1. Section 115BBE is proposed to be amended w.e.f. 01.04.2017, i.e. from AY 2017-18. Therefore, even the credits/investments prior to the amendment bill would be subjected to higher rate of tax. To this extent the amendment is retrospective.
  2. In the existing provision of section 115BBE, there is no requirement of filing of return and payment of tax before the end of the PY/AY. However, in the proposed amendment the return is required to be filed before the end of the relevant AY and taxes are required to be paid before the end of the PY. Thus, for any income offered for tax u/s 115BBE for FY 2016-17, tax is required to be paid on or before 31.03.2017 and return is required to be filed on or before 31.03.2018 in order to avoid the levy of penalty u/s 271AAC.
  3. The authority to levy surcharge @ 25% u/s 115BBE is gathered by amending section 2(9) of the Finance Act, 2016 whereby reference of section 115BBE is omitted from the third proviso and seventh proviso is inserted to provide for levy of surcharge @ 25% for the purpose of payment of advance tax on the income referred to in section 115BBE.
Section Particulars Existing Provisions Proposed Provisions
271AAB Penalty in search and seizure cases Applicability

Search is initiated on or after 01.07.2012 but before the date on which the Taxation Laws (Second Amendment) Bill, 2016 receives the assent of the President

Penalty Provisions

-10% of income, if admitted in search, substantiated, pays tax, interest & furnishes return on or before the specified date, i.e. the time available u/s 139(1)

-20% of income, if not admitted but offered in return & tax/interest is paid as above

-60% of income in any other case

Applicability

Search is initiated on or after the date on which the Taxation Laws (Second Amendment) Bill, 2016 receives the assent of the President

Penalty Provisions

-30% of income, if admitted in the search, substantiated, pays tax, interest & furnishes return on or before the specified date, i.e. the time available u/s 139(1)

-60% of income in any other case

  1. Penalty u/s 271AAC is subject to the provision of section 271AAB in as much as the section provides that ‘the AO may, notwithstanding anything contained in this Act other than the provisions of section 271AAB’. Therefore, where the income in the nature of section 115BBE is found in course of search, the penalty provisions would be governed by section 271AAB and not be section 271AAC. Thus, in case of search, the tax and penalty on the income referred u/s 115BBE would be calculated as under:-

(a) Where income in nature of sec.68, 69, etc. is admitted in search, return filed u/s 139(1), then tax and penalty on such income would be calculated as under:-

Tax including surcharge and cess u/s 115BBE- 77.25%

Penalty u/s 271AAB                                           -30%

Thus, on income of Rs.100, tax & penalty  would be Rs.107.25.

(b) Where income in nature of sec.68, 69, etc. is  not admitted in search but assessed by AO, then tax and penalty on such income would be calculated as under:-

Tax including surcharge and cess u/s 115BBE- 77.25%

Penalty u/s 271AAB                                          -60%

Thus, on income of Rs.100, tax & penalty  would be Rs.137.25.

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