The finance ministry on Monday made public its latest income tax declaration scheme, called the Pradhan Mantri Garib Kalyan Yojana, 2016. All citizens who wish to now declare their unaccounted income, in the wake of the government's demonetisation scheme, can avail this option once it is ratified by the Parliament.
This scheme has an effective tax rate of 30 percent, plus a surcharge of 33 percent on the tax and a penalty of 10 percent of the income declared, taking the effective payment to approximately 50 percent of undisclosed income. Further, 25 percent of the declared income will remain locked-in for four years, in an interest - free deposit scheme and will be used to fund the Pradhan Mantri Garib Kalyan Yojana (PMGKY). The PMGKY will be used for government initiatives in areas such as irrigation, housing, toilets, infrastructure, primary education, primary health, livelihood etc.
For any one availing this scheme, the tax department will not question the source of this income, said Hasmukh Adhia, revenue secretary, government of India.
He added that chapter 9 will be added in the Finance Act 2016 to notify this scheme.
Other Amendments
The Taxation Laws (Second Amendment) Bill, 2016 proposes to amend Section 115(BBE) of the Income Tax Act, 1961 to double the tax rate levied on unexplained credit, investment and cash to 60 percent plus a surcharge of 25 percent of tax, taking the effective tax rate to 75 percent.
The government's statement announcing the changes also says that a penalty of 10 percent will be levied in instances where the Assessing Officer determines the income.
For cases of search and seizure, the government has proposed amendments to increase penalty amounts by three times.
Currently, the penalty is 10 percent of the income if the income is admitted, returned and taxes are paid, the amendment increases it to 30 percent.
The penalty on undisclosed income that is not admitted but returned, and on which taxes are paid, is currently 20 percent and has been amended to 60 percent.
The current provision of penalties applicable on under-reporting of income at 50 percent of the tax and on misreporting of income at 200 percent of tax will remain and there are no changes being made to them, Adhia said to reporters in a briefing session.
The Bill with the proposed amendments has been tabled in the Parliament by Finance Minister Arun Jaitley on Monday.
These tax amendments, if approved, will be applicable from April 1, 2016.
“PMGKY Is A Killer App”
Explaining the need for amendments, Sudhir Kapadia, senior tax partner at EY said that applying the existing provisions in the Act on under-reporting and misreporting would have allowed unexplained income to escape being penalised.
Allowing this unintended benefit would have meant that the depositors of unaccounted cash deposits post demonetisation would be better-off than those who availed of the Income Disclosure Scheme and paid a 45 percent tax.Sudhir Kapadia, Senior Tax Partner, EY
Referring to the newly announced PMGKY as a “killer app”, Kapadia said it offers the best terms to declare undisclosed income.
It says cash and bank deposits. It is a very narrow application clearly aimed at what we are facing as a result of demonetisation. The base case here is the Income Declaration Scheme where the tax rate was 45 percent. You don't want a dishonest taxpayer with either the same or a better result which is the right thing to do. So here you have to pay 50 percent tax and 25 percent will be locked in without earning any interest.Sudhir Kapadia, Senior Tax Partner, EY
Watch the full interview with Sudhir Kapadia here
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