Direct Tax Alert Analysis of the Taxation
Laws (Second Amendment)
Bill, 2016 - Undisclosed
Income under
Pradhan Mantri Garib
Kalyan Yojana &
Section 115 BBE
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Direct Tax Alert-Analysis of the Taxation Laws
No.30/2016
For Private Circulation
Only
Analysis of the Taxation Laws (Second Amendment) Bill,
2016 - Undisclosed Income under Pradhan Mantri Garib
Kalyan Yojana & Section 115 BBE
Government has proposed amendment to Income Tax Act, 1961 pursuant to the
demonetization of old Rs 500 and Rs. 1000 notes. The said amendment gives tax evaders
another income declaration scheme.
The salient features of the proposed amendment are as follows:
Taxation and investment regime for Pradhan Mantri Garib Kalyan Yojana, 2016.
•
A disclosure scheme called the Pradhan Mantri Garib Kalyan Yojana, 2016
(PMGKY) is introduced allowing persons to deposit money by paying
tax/surcharge/penalty of 50% (approx) consisting of:
o Tax @ 30% of the income declared under the scheme.
o Pradhan Mantri Garib Kalyan Cess/surcharge @ 33% of tax i.e. 9.9% of the
income declared.
o Penalty @ 10% of the income declared under the scheme.
•
At least 25% of the income declared shall be deposited in an interest free scheme to
be notified by the government in consultation with the RBI with a 4 years lock in
period.
•
The scheme will be called Pradhan Mantri Garib Kalyan Scheme. The money would
be used for projects in irrigation, housing, toilets, infrastructure, primary education
and health and livelihood so that there is justice and equality.
•
Any person may make a declaration in respect of any income for AY 2017-18 or any
earlier years in form of cash or deposit made in an account maintained by the person
with a specified entity.
•
Declaration to be filed before Principal Commissioner or Commissioner of Income
tax as may be notified.
•
Payment of tax/surcharge/penalty as well as the interest free deposit under PMGKY
scheme shall be made before filling of the declaration.
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Direct Tax Alert-Analysis of the Taxation Laws
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•
The declaration shall be accompanied by the proof of deposit, payment of tax,
surcharge and penalty.
•
Amount declared in the scheme shall not be included in the total income of the
declarant for any assessment year under income tax.
•
No deduction in respect of any expenditure or allowance or set off of any loss shall
be allowed against the income declared.
•
The PMGKY scheme provides for immunity from prosecution, wealth tax, civil
laws and other taxation laws. However, there is no immunity from FEMA,
Prevention of Money Laundering Act, Narcotics and Black money Act (Undisclosed
Foreign income).
Example:
30% tax = Rs 300
Income declared by
assessee = Rs 1,000.
9.9% surcharge
= Rs 99
10% penalty
= Rs 100
25% deposit = Rs
250
Total cash in hand after tax
payment and deposit = Rs. 251.
Total cash in hand after 4 years =
Rs 501.
Amendments to section 115BBE and introduction of section 271AAC of the Income
Tax Act, 1961 as applicable from AY 2017-18 and onwards.
For those who do not opt for the above scheme but include undisclosed cash, deposit in
bank account, investment and other assets in the return of income filed or those who are
subsequently found with any undisclosed cash or deposit in bank account, the following
provisions of the income tax act as amended would apply:
•
Tax payable u/s 115BBE is increased from present rate of 30% to 60% for income
assessed as unexplained credit, investment, cash and other assets.
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Direct Tax Alert-Analysis of the Taxation Laws
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•
Surcharge on income taxable u/s 115BBE @ 25% of tax payable (15% of relevant
income).
•
New section 271AAC is introduced for penalty on income taxable u/s 115BBE
which will be 10% of the tax payable u/s 115BBE.
•
Therefore, the tax would be 60% + surcharge @ 15% plus education Cess of 3%
resulting in total tax levy of 77.25%. Further the assessing officer could levy a
penalty @ 10% on the tax payable of 77.25%. Accordingly the effective rate of tax
could be 84.975%.
•
No penalty shall be levied if the income is declared in the return of income and the
tax is paid before end of the relevant previous year.
•
No penalty u/s 270A of the Income tax Act shall be imposed.
Example:
Undisclosed income = Rs
1,000.
60% tax = Rs 600
15% surcharge
= Rs 150
3% education
Cess = Rs 22.5
10% penalty on
tax = Rs 77.25
Total cash in hand for the
assessee after tax and penalty
payment = Rs 150.25/-
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Direct Tax Alert-Analysis of the Taxation Laws
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Proposed amendments to section 271AAB of the Income Tax Act, 1961 - Penalty in
search cases.
Presently the penalty is 10% of the income, in cases where search has been initiated and
the income is admitted, substantiated, returned and taxes are paid.
The proposed amended provisions are as follows:
•
Penalty, in addition to tax, shall be payable at the rate of:
1.
30% of the undisclosed income, if the assessee –
o
Admits the undisclosed income in the statement recorded by the assessing
officer during the search proceedings.
o
Substantiates the manner in which the undisclosed income was derived.
o
Pays tax and declares the income in the return for the relevant previous
year.
2.
•
60% of the undisclosed income in any other case.
Under both the above situations the tax will be increased by surcharge and education
Cess as applicable.
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Direct Tax Alert-Analysis of the Taxation Laws
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errors for which we shall not be held responsible.
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