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PMGKY Taxation Laws Amendment To Really Hurt The Tax Defaulters

In its war against black money, the Govt. has recently made illegal all the bank notes of Rs.500 and Rs.1000 existing as on Nov 8, 2016. This, of course, is known to all. Everyone is going through the pains of this massive demonetization programme.

However, those dealing in black money are exceptionally smart. From the minute the demonetization was announced, they have resorted to various means to convert their black money into white, or the black money in old notes to black money in new notes.

One of the problems envisaged by the Govt., is the misuse of some of the existing provisions of the Income Tax Act.

Since these may help the unscrupulous people to conceal their income, they need to be suitably amended. Hence, the announcement of Taxation Laws (Second Amendment) Act, 2016.

The basic intention of this amendment is to make sure that the tax defaulters are subjected to higher tax rates along with stringent penalties.

With this change, the Govt. is hopeful that instead of motivating people to find new ways of keeping black money as black, they could be encouraged to pay higher taxes and convert the same to white. This will give the Govt. additional revenue for its welfare programmes for the poor. Plus, the black money will legitimately become a part of the formal white economy.

Accordingly, this scheme has been named as ‘Taxation and Investment Regime for Pradhan Mantri Garib Kalyan Yojana, 2016’ (PMGKY).

Detailed below are the salient aspects of the same.

A. Tax Defaulter who declares "undisclosed" income under this Scheme

He/she shall have to pay
Tax = 30% of the undisclosed income
+ PMGKY Cess = 33% of 30% tax = 9.90% of the undisclosed income
+ Penalty = 10% of the undisclosed income
= 49.90%.

[Note: The above PMGKY Cess of 33% is the new 'Pradhan Mantri Garib Kalyan Cess' under the Scheme]

Thus, the total tax payable works to 49.90%. In other words, you will have to pay half the amount of black money declared, as tax.

Further, of the remaining 50%, you are allowed to keep only 25% with you.

The balance 25% has to be compulsorily deposited with the Govt. under a new scheme 'Pradhan Mantri Garib Kalyan Deposit Scheme, 2016'. As per the same,
a) Your 25% money would be locked in for Four Years.
b) No interest would be payable on the said Deposit.

The Govt. proposes to use this amount towards irrigation, housing, toilets, infrastructure, primary education, primary health, livelihood, etc., so that there is justice and equality.

Be prepared for some serious trouble if you don't declare any undisclosed income.

B. Tax Defaulter who does "not declare" any undisclosed income under this Scheme, but is discovered later

This includes unexplained credit, investment, cash and other assets.

Such a person shall have to pay
Tax = 60% of the undisclosed income
+ Surcharge = 25% of 60% tax = 15% of the undisclosed income
+ Penalty = 10% of tax + surcharge i.e. 10% of 75% = 7.50% of the undisclosed income
= 82.50%.

C. Tax Defaulter whose undisclosed income is found during search and seizure

i) If the assessee admits to the undisclosed income
Such a person shall have to pay
Tax = 60% of the undisclosed income
+ Surcharge = 25% of 60% tax = 15% of the undisclosed income
+ Penalty = 30% of the undisclosed income
= 105%.

ii) If the assessee DOES NOT admit to the undisclosed income
Such a person shall have to pay
Tax = 60% of the undisclosed income
+ Surcharge = 25% of 60% tax = 15% of the undisclosed income
+ Penalty = 60% of the undisclosed income
= 135%.

- Declaration of undisclosed income should be in form of cash or deposit with a bank or post office.
- The undisclosed income referred to above means gross income. In other words, no deduction of any expenses or set-off would be allowed.
- The Scheme shall not apply for the matters pertaining to Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, Narcotic Drugs and Psychotropic Substances Act, Unlawful Activities (Prevention) Act, Prevention of Corruption Act, Prohibition of Benami Property Transactions Act, Prevention of Money-Laundering Act, Special Court (Trial of Offences Relating to Transactions in Securities) Act and Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act.

By hiding their real income, tax evaders put extra burden on the honest taxpayers. Also, they deprive the country of precious resources, that can otherwise be used for the benefit of all, especially the poor and disadvantaged section.

Therefore, various steps being taken by the present Modi Govt. from time to time, to flush out the black money, is indeed most welcome.

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