Bharat SainiLast Updated on February 21, 2017 by Bharat Saini
The Taxation Laws (Second) Amendment Bill, 2016, passed by Lok Sabha on 29 November, 2016, will provide certainty to taxation for voluntary compliance and avoiding litigation of deposits in bank accounts post-demonetisation of high denomination notes. The government did this following “concerns that some existing provisions of the Income-tax Act, 1961 could possibly be used for concealing black money.” One more chance has been given to black money hoarders to come clean.
“In the wake of declaring specified bank notes “as not legal tender”, there had been suggestions 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 amendment to the Act. 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.”
As per the amendment those who disclose black money to banks will have to pay 50% levy, broken up into 30% tax, a 33% surcharge or cess on that tax and a 10% penalty. Further, they have to park one quarter of the disclosed income in an interest-free deposit for four years, which money will go into a welfare fund, the Pradhan Mantri Garib Kalyan Yojana, the funds to be used, ”for the schemes of irrigation, housing, toilets, infrastructure, primary education, primary health, livelihood etc., so that there is justice and equality”. The 33% surcharge will be the Pradhan Mantri Garib Kalyan Cess. Non-disclosure, if detected and proven by the tax department, would lead to punitive action, taking the total liability up to 85 per cent. Some would be tempted to take the chance that they would not be detected.
This amendment by allowing people with undisclosed incomes a chance to pay the government a slightly higher levy, the government hopes of seeing the entire black money being converted into accounted-for funds. This has been done as people were reportedly buying up old notes at a discount and converting them into new currency using a variety of ways. This would have left the amount of black money intact, although a part of it could have transferred to the launderers.
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,” and added that there is no blanket immunity from FEMA, PMLA, Narcotics, and other laws.
However, the current general penalty provisions on under-reporting and misreporting will stay on the statute books as these will continue to apply in other situations.
Finance Ministry said, “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.”
