Lok Sabha passes Taxation Laws (Second Amendment) Bill, 2016

Nov 30, 2016 15:41 IST

The Lok Sabha on 29 November 2016 passed the Taxation Laws (Second Amendment) Bill, 2016 to amend the Income Tax Act, 1961 and Finance Act, 2016.

The Bill was introduced in Lok Sabha on 28 November 2016. It imposes a higher rate of tax and penalty in respect of undisclosed incomes.

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The Bill proposes to introduce the Pradhan Mantri Garib Kalyan (PMGK) Yojana, 2016.  Under the scheme, taxpayers will be required to declare their undisclosed income possessed in the form of cash or deposited in banks, post offices or Reserve Bank of India before a notified date.  

The money from PMGK will be used for projects in irrigation, infrastructure, primary education, primary health, housing, toilets and livelihood.

Provisions of the Bill
• The cess will be known as the Pradhan Mantri Garib Kalyan Cess and will be used for welfare of weaker sections.
• The taxpayer has to deposit 25 percent of the undisclosed income into the Pradhan Mantri Garib Kalyan Deposit Scheme, 2016. The deposit will not earn any interest and can be withdrawn only after four years from the date of deposit.
• People, who will declare their undisclosed wealth in denominations of banned Rs 1000 and Rs 500 currency notes under the PMGKY scheme, will have to pay a tax at the rate of 30 percent of the undisclosed income.
• Additionally, 10 percent penalty and PMGK Cess at the rate of 33 percent of tax will be levied on the undisclosed income.
• If taxpayer does not admit his undisclosed income, he will be levied with flat 60 percent penalty plus a cess of 25 percent of tax, which will amount a levy of 75 percent tax in total.

Levies on undisclosed income as proposed by the Bill

Levy

Rate

Tax

30% on undisclosed income

Cess

33% on the tax levied

Penalty

10% on undisclosed income

The bill provides for three possible scenarios:
Voluntary declaration of black money: The declarant shall be required to pay tax at 30 percent of the undisclosed income and penalty at 10 percent of the undisclosed income. A PMGK cess at 33 percent of tax will be levied on the income. In addition, declarant shall have to deposit 25 percent of undisclosed income for a period of 4 years in welfare schemes.

Non-declaration of black money: Those who continue to hold onto undisclosed cash and are caught, will be levied with flat rate of 60 percent plus a surcharge of 25 percent of tax will be charged. Besides, an additional 10 percent penalty can also be levied.

Black-money unearthed during a search and seizure: 30 percent penalty will be charged above taxes if an admission is made and this will be doubled to 60 percent in any other case.
The disclosures in PMGKY scheme will ensure that no questions will be asked about the source of fund. It will ensure immunity from wealth tax, civil laws and other taxation laws. But there is no immunity from FEMA, PMLA, Narcotics and Black Money Act.

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