Amendment Bill introduced for tax defaulters to pay 50 percent on voluntarily disclosed income till Dec30

NewDelhi,Nov29:The Centre on Monday introduced a Bill in the Lok Sabha that gives tax defaulters an opportunity to come clean by paying tax and penalties.

The key feature of the proposed amendment to the Income-Tax Act is a proposal to impose 50 per cent tax on undeclared income that is voluntarily disclosed till December 30, following which 82.5 per cent (75 per cent tax and 10 per cent of such tax as penalty) could be levied on undeclared income detected by authorities. The tax changes are intended to supplement the demonetisation move targeted at curbing black money, the Finance Ministry said in a statement.

The proceeds — made a part of the Pradhan Mantri Garib Kalyan Yojana — will be used to fund schemes for providing “irrigation, housing, toilets, infrastructure, primary education, primary health and livelihood, so that there is justice and equality”, the Ministry said.

“In the wake of declaring specified bank notes “as not legal tender”, there have been 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,” the government said, explaining the rationale for the proposed tax law change. This would not only help the government get additional revenue for undertaking activities for the welfare of the poor but would also ensure “the remaining part of the declared income legitimately comes into the formal economy.”

Revenue Secretary Hasmukh Adhia said no questions would be asked about source of funds for disclosures under the scheme. “It would ensure immunity from Wealth Tax, civil laws and other taxation laws,” he said.

There is no blanket immunity

Revenue Secretary Hasmukh Adhia said here on Monday that the proposed tax scheme would provide “no immunity from FEMA, PMLA, Narcotics, and Black Money Act.”

The scheme will cover deposits made from November 10, he said. “We will notify the ‘last date’ after the Bill is passed, but it is likely to be December 30. Pradhan Mantri Garib Kalyan Yojana (PMGKY) will come in as a new Chapter (nine) in Finance Act 2016.”

The government said it is introducing the Taxation Laws (Second Amendment) Bill, 2016 in Parliament following “concerns that some existing provisions of the Income-tax Act, 1961can possibly be used for concealing black money.”

Former CBDT Member S.S. Khan said any disclosure scheme succeeds when either the tax rates are extremely lucrative or the possibility of detection is very high.

“In this case, the chances of detection are very high. However, it is partly retrospective in nature as it will apply to the income of the current year,” he said, adding that conceptually it is not a good idea to impose high tax rates as it could lead to evasion.

Rahul Garg, Leader, Direct Tax, PwC, said: “Providing certainty on taxation of deposits in bank accounts post-demonetisation is good for voluntary compliance and avoiding litigation.”

Sudhir Kapadia, National Tax Leader, EY India, said it is expected that considerable amounts of unaccounted cash and bank deposits will come under the new PMGKY scheme as the risk is higher if the officials detect the undisclosed income later.

“Evasion of taxes deprives the nation of critical resources which could enable the Government to undertake anti-poverty and development programmes. It also puts a disproportionate burden on the honest taxpayers who have to bear the brunt of higher taxes to make up for the revenue leakage,” the Finance Ministry said.