New Income Declaration Scheme (IDS): Pradhan Mantri Garib Kalyan Yojana 2016
Post Demonetization, Government has realized it needs to do more in terms of tax reform to eradicate the influx of Black Money in the economy. The new amendment bill introduced in the Parliament is aimed at plugging the loopholes in the Income Tax Act which may be exploited by the illicit money holders. However, the Government has once again given an option to the concerned individuals to disclose their undeclared income. The ones voluntarily disclosing their undeclared wealth will be taxed/penalized the least while steep tax and penalty will be levied on the rest.
The disclosure scheme has been named as Garib Kalyan Yojana 2016 which is an amendment to existing Income Tax Act, levies tax and penalties U/S 115BBE and 271 AAB. If undeclared Income is disclosed under the Scheme, the respective Individual will have to pay 30% tax on the income, plus 33% (comes to 10% of total undeclared wealth) surcharge termed as “Garib Kalyan Cess” on the tax paid along with 10% penalty. This translates to 50% of the undeclared income going for tax and penalty while out of the remaining fund, 25% needs to mandatorily deposited in interest free bonds for 4 years while the remainder will be available to the assesse.
If an individual refuses to deposit in the interest free bonds then upto 85% of the entire undeclared amount will be considered as Tax and Penalties.
Wealth recovered in raids, upto 90% of the undeclared amount will be charged as tax and penalties.
The Bill has already been cleared in the Lok Sabha.
However, the Amendment remains silent on deposits below Rs 2,50,000/- which will be a concern for the small depositors as well.
Implication of Tax Under Various Scenarios
Implication of Tax on Undeclared Income:
Declaration under Pradhan Mantri Garib Kalyan Yojana 2016
Tax @30% on Undeclared Income
Surcharge @33% on Tax
Penalty @10% on Declared Income
It means 49.9% of the Income will be charged as Tax and Penalty.
Rest 25% needs to be deposited for 4 years in Pradhan Mantri Garib Kalyan Yojana which will not yield any interest. The remaining fund will be available to the individual. It also provides immunity against any further prosecution barring exceptional cases.
Tax and Penalty on Undeclared Income/Wealth Under Section 115BBE
Tax @60% on Undeclared Income
Surcharge @25% on Tax
This implies that 75% of the Income will be charged as Tax with a provision to levy additional 10% penalty on Tax Payable including surcharge in certain cases at the discretion of the Assessing Officer.
Tax and Penalty on Undeclared Income/Wealth recovered during Raids/Seizure Under Section 271AAB
Incase, Individual admits to Tax Evasion
Total Tax implication of 60% of the Undeclared Wealth
In other scenarios,
Total Tax Implication of 90% of the Undeclared Wealth
No Tax on Inherited Gold and Jewellery
Amendments won’t tax the inherited gold and jewellery or items purchased through disclosed/agricultural income. During seizure and raids, gold and jewellery upto the extent of 500gms per married woman, 250 gms per unmarried woman, 100gms per male member would be exempted.