30% Tax plus 10% Penalty and 33% Surcharge
To fight against black money Government with cooperation of RBI has recently withdrawn bank notes of existing series of denomination of the value of Rs.500 and Rs.1000 [Specified Bank Notes (SBN)]. However, black money hoarders have started misusing various loopholes in the existing law for concealing black money.
To tackle this issue and prosecute such persons, Government has today tabled an alternative Income Declaration Scheme namely, ‘Taxation and Investment Regime for Pradhan Mantri Garib Kalyan Yojana, 2016’ (PMGKY) in the parliament which ensure higher tax and stringent penalty provision against such practices.
Pradhan Mantri Garib Kalyan Yojana
Under Pradhan Mantri Garib Kalyan Yojana, 2016, the black money declarant shall be required to pay tax at flat rate of 30% of the undisclosed income. Additionally, 10% penalty will be charged on the undisclosed income and surcharge of 33% will also be levied on tax part (not on penalty). This surcharge will be collected as Pradhan Mantri Garib Kalyan Cess and will be used to accelerate poor welfare to eliminate poverty.
In addition to tax, penalty and surcharge totaling to approximate 50%, the black money declarant has to deposit 25% of the undisclosed income in a Deposit Scheme to be notified by the RBI in consultation with the Government under the ‘Pradhan Mantri Garib Kalyan Deposit Scheme, 2016’. The deposited money will not fetch any interest and shall be available to withdraw only after 4 years.
The money under Pradhan Mantri Garib Kalyan Deposit Scheme is proposed to be utilized for projects in irrigation, housing, toilets, infrastructure, primary education, primary health and livelihood so that there is justice and equality.
The Bill also proposes to amend Section 115BBE of the Income Tax Act to provide hefty tax, surcharge and penalty on unexplained credit, investment, cash and other assets. For those who continue to hold black money/unaccounted cash and are caught by the department, existing law 115BBE is proposed to be amended to levy tax at steep rate of 60% plus a surcharge of 25% of tax (25% of 60% i.e. 15%) totaling to levy of 75%. Besides, an assessing officer on his discretion can levy a penalty of 10% in addition to the 75% tax, taking the total tax liability to 85%.
The existing provision of penalty of under-reporting of income and misreporting of income at 50% and 200% of tax remains unchanged. Under-reporting or misreporting of income means the difference between the return income and assessed income.
The Current penalty provisions of search and seizure under section 271AAB are 10% of income, if admitted and taxes are paid, 20% if not admitted but taxes are paid and 60% in any other case. This is replaced with 30% if income is admitted and taxes are paid and 60% in any other case.
If Black money is disclosed under Pradhan Mantri Garib Kalyan Yojana Scheme then no questions will be asked regarding the source of income and would be given immunity from wealth tax, civil laws and other taxation laws but not from EMA, PMLA, Narcotics, and black money act.
An overview of the amendments proposed in the Bill are placed below;
Overview of Amendments Proposed
Understanding the Impact of the proposed tax changes:
|Say someone has disclosed Rs.5 lakhs as Unaccounted Income in form of cash or bank deposits:
A) Taxation and Investment Regime for Pradhan Mantri Garib Kalyan Yojana, 2016 (PMGKY)
1. Tax, Surcharge and Penalty
Tax @ 30% – Rs.1.50 lakhs
Surcharged @ 33% of Rs.1.50 lakhs – Rs.49,500
Penalty @ 10% of Declared Income – Rs.50,000
Total Tax, Surcharge and Penalty – Rs.2,49,500 (i.e. approx. 50% of declared income)
25% of the declared income i.e. Rs.1.25 lakhs to be deposited without interest for 4 years.
|Provisions for taxation & penalty of unexplained credit, investment, cash and other assets
B) Tax under section 115BBE
Tax at 60% – Rs.3 lakhs
Surcharge @ 25% of Rs.3 lakhs – Rs.75,000
Total Tax u/s 115BBE – Rs.3.75 lakhs i.e. 75% of unexplained amount.
|C) Penalty under section 271AAC
In case assessing officer decides to levy of penalty of 10% in addition to tax and surcharge than
Penalty 10% on unexplained amount – Rs.50,000
Total Tax, surcharge and penalty comes to Rs.4,25,000 i.e. 85% of the unexplained amount.
|D) Penalty for search and seizure under section 271AAB
1. 30% of income, if admitted, returned and taxes are paid
Penalty 30% – Rs.1.50 lakhs
2. 60% of income, in any other case
Penalty 60% – Rs.3 lakhs
Source: PIB and Economic Times