Overview:
In order to bring more clarity
and to capture the possible concealing black money, the Taxation Laws (Second
Amendment) Bill, 2016 (“the Bill”) was introduced in Parliament to amend the
provisions of the Income Tax Act, 1961 (Act) to ensure that defaulting assesses
are subjected to tax at a higher rate and with stringent penalty provision. It
is observed that 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. As a
step forward to curb black money, bank notes of existing series of denomination
of the value of Rs.500 and Rs.1000 [Specified Bank Notes(SBN)] have been
recently withdrawn by Reserve Bank of India.
Further, 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 so
that not only the Government gets additional revenue for undertaking activities
for the welfare of the poor but also the remaining part of the declared income
legitimately comes into the formal economy.
Thus to make this transformation
government decided to amend the existing tax laws and introduced The Taxation
Laws (Second Amendment) Bill, 2016 in Lok Sabha on November 28, 2016. It seeks to amend the Income Tax Act, 1961
and Finance Act, 2016.
Proposed Amendments:
·The Bill proposes to introduce the Pradhan
Mantri Garib Kalyan Yojna, 2016. Under the scheme, taxpayers may declare
undisclosed income possessed in the form of cash or deposited in banks, post
offices, or Reserve Bank of India before a notified date. The declarant under
this regime shall be required to pay tax @ 30% of the undisclosed income, and
penalty @10% of the undisclosed income. Further, a surcharge to be called
‘Pradhan Mantri Garib Kalyan Cess’ @33% of tax is also proposed to be levied.
·In addition to tax, surcharge and penalty
(totaling to approximately 50%), the declarant shall have to deposit 25% of
undisclosed income in a Deposit Scheme to be notified by the RBI under the
‘Pradhan Mantri Garib Kalyan Deposit Scheme, 2016’. This amount is proposed to
be utilised for the schemes of irrigation, housing, toilets, infrastructure,
primary education, primary health, livelihood, etc., so that there is justice
and equality.
·The declarations of undisclosed income made
under the Yojana will not be used as evidence under provisions of any other
law, except certain laws including: (i) the Prohibition of Benami Property
Transactions Act, 1988, (ii) the Prevention of Money Laundering Act, 2002,
(iii) the Unlawful Activities (Prevention) Act, 1967, (iv) the Black Money
(Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, (v)
the Special Court (Trial of Offences Relating to Transactions in Securities)
Act, 1992.
·Disclosure of unexplainable income: Currently, a
tax is levied when the taxpayer is not able to explain any of his income. The Bill proposes to: (i) increase the tax
rate and surcharges levied on such income, and (ii) levy of a penalty. The proposed changes are:
Change in taxes on unexplained
income
· Income found during search of taxpayer’s assets:
Currently, the income tax assessment authorities may initiate an investigation
and search of assets of a taxpayer on the suspicion of possessing undisclosed
income. In the case of such a search, in
addition to the tax payable, an additional penalty will be levied. The penalty will be levied at a higher rate
if the taxpayer does not admit to possession of undisclosed income found in the
search. The Bill proposes to increase
the penalties as prescribed:
Penalties on undisclosed income
found during a search
Miscellaneous Provisions:
·No deduction in respect of any expenditure or
allowance or set off of any loss shall be allowed against the income in respect
of which a declaration is made.
·A declaration under sub-section (1) of section
199C shall be made by person competent to verify the return of income under
section 140 of the Income Tax Act, to the Principal commissioner or the
Commissioner notified in the official Gazette for this purpose and shall be in
such form and verified in such manner, as may be prescribed.
·The tax and surcharge payable under section 199D
and penalty payable under Section 199E in respect of undisclosed income, shall
be paid before filing of declaration under sub-section (1) of section 199C.
·The declaration under sub-section (1) of Section
199C shall be accompanied by the proof of deposit referred to in sub-section
(1) of section 199F, payment of tax, surcharge and penalty.
·The amount of undisclosed income declared in
accordance with section 199C shall not be included in the total income of the
declarant for any assessment year under the Income Tax Act.
· Undisclosed income declared not to affect
finality of completed assessments.
· Any amount of tax and surcharge paid under
section 199D or penalty paid under section 199E shall not be refundable.
· Declaration not admissible in evidence against
declarant, Declaration by misrepresentation of facts to be void.
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