Black money hunt: Taxation Law Second Amendment Bill is last chance for evaders to come clean

By introducing the Taxation Laws (Second Amendment) Bill 2016 in Parliament on Monday, the Narendra Modi government shifted the drive against black money to a next level, probably giving the black money hoarders a last chance to come clean on it by declaring their unaccounted income and paying tax on it.

Even as it underscored the government's seriousness in tackling black money with an iron fist, the streets across the country erupted with protests against demonetisation led by a united Opposition.

The said bill has proposed a scheme – ‘Taxation and Investment Regime for Pradhan Mantri Garib Kalyan Yojana (PMGKY) 2016’— under which the government wants to give people a chance to disclose their black money, pay taxes with heavy penalty and come clean. In return, the additional revenue that the government gets out of the scheme, will be used in the welfare activities of the poor.

Representational image. PTI

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“Concerns have been raised that some of the existing provisions of the Income Tax Act can possibly be used for concealing black money. The Taxation Laws (Second Amendment) Bill, 2016 has been introduced in Parliament to amend the provisions of the act to ensure that defaulting assessees are subjected to tax at a higher rate and stringent penalty provision,” a Ministry of Finance statement said.

“Post-demonetisation, 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,” the statement said.

The government intends to utilise the amount collected from the PMGKY for the schemes of irrigation, housing, toilets, infrastructure, primary education, primary health, livelihood, etc. to ensure justice and equality for the poor. Post-demonetisation, this is probably the last opportunity that the government would like to give, who either intentionally or unintentionally concealed their unaccounted income in the last Income Disclosure Scheme 2016.

While, the political opponents and critics of Modi’s demonetisation move have been continuously launching a scathing attack on the prime minister  alleging it a ‘surgical strike on high-value currency notes’ that has virtually jeopardised the economy, it’s in fact a well-calculated strategy of the government to curb black money menace.

How the new scheme work?

Under the new ‘Taxation and Investment Regime’, the proposed scheme – PMGKY meant for the undisclosed income in the form of cash and bank deposits has the provisions of imposing tax, surcharge and penalty in two parts:

Part A
- Tax @ 30 percent tax on income declared
- Surcharge @ 33 percent of tax
- Penalty @ 10 percent of income declared.
- Total @ 50 percent of income (approximately)

Part B

Deposit: 25 percent of declared income to be deposited in interest-free deposit scheme for four years.

If a person declares his undisclosed Rs 1 crore income, 49.9 percent will be deducted as tax, surcharge and penalty. Out of the rest Rs 50 lakh, 25 percent of the declared income that is Rs 25 lakh will be deposited in the PMGKY for four years. As a result, the person gets 25 percent (Rs 25 lakh)

“The scheme is good and will help the government to collect additional taxes. As a part of the scheme, the amount equivalent to 25 percent will also have to be deposited in interest free deposit scheme. Since the basic purpose of the scheme is to provide a last opportunity to all people holding huge amounts of cash, the scheme is slightly penal in nature. However, due to the interest-free lock-in period, some people might still want to go in for illegal means as the cost (as reported in the media) is around 30-40 percent,” said chartered accountant Abhishek Aneja.

“To make the scheme more effective, either the lock-in period should be reduced or some amount of interest may be provided to make the scheme slightly more attractive as compared to the illegal means and this will help the government to collect more taxes and reduce tax litigation in coming years due to demonetisation,” he added.

Government is watching

The latest Taxation Laws (Amendment) Bill is a part of the series of measures that the government systematically introduced in the last two years to tighten the noose around black money hoarders. All such steps helped the government to collect information of possible tax evaders and increase the tax net.

- The I-T sleuths have been tracking high value transactions involving purchases of high-end luxury goods — from paintings and other collectibles to haute couture (high-end fashion), exclusive jewellery and watches to name a few.
- Central Board of Direct Taxes based on the data collected of the assessees has done a 360-degree profiling. It won’t let a tax evader escape.
- In 2015, the cash transaction in sale or purchase of immovable property was restricted to Rs 20,000.
- A series of changes were made in the last two years in I-T Act and Rules like disclosure of Aadhaar number and Passport number in ITR, Disclosure of Assets by assessees having more than Rs 50 lakhs of income, disclosure of all bank accounts and restricting of cash transactions by widening the net of PAN.
- Introduction of Annual Information Returns and imposition of TCS (Tax collected at source) on many transactions including the cash sale of goods or services of more than Rs 2 lakh.
- TCS on purchase of high value cars and, jewellery and bullion as well as imposition of excise duty on jewellers.