New Income Declaration Scheme (IDS): Pradhan Mantri Garib Kalyan Yojana 2016

Wednesday, November 30th, 2016 Amritesh no responses


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 to disclose their undeclared income.

The disclosure scheme has been named as Garib115BBE and Kalyan Yojana 2016 which is an amendment to existing Income Tax Act, levies tax and penalties U/S 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

Tax @30%

Penalty @30%

Total Tax implication of 60% of the Undeclared Wealth

In other scenarios,

Tax @30%

Penalty @60%

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.
Demonetization: Potential Impact on Economy and Finance

Amritesh is an experienced professional in the field of HR, Finance and Compliance. He is currently working in the IT Industry with an US based firm. He took up Blogging as a hobby which eventually turned into passion. He primarily focuses on topics related to Personal Finance, HR, Compliance and Technology.

All the opinions/suggestions/views expressed on this blog are just for sharing information. Readers are requested to consult their respective financial advisers and experts before taking any decision. Views shared through post or comments are personal opinion meant for reference of the readers. These should not be considered as Investment Advice or Legal Opinion. The Blog or the Author does not take any responsibility regarding any such action taken by any Individual.
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