Taxation Laws (Second Amendment) Bill, 2016 introduced in Lok Sabha

Bill proposes to amend Section 115BBE of IT Act to provide for a steep 60% tax & 25% surcharge for those who choose to disclose it after Pradhan Mantri Garib Kalyan Yojana ends.

Nov 29, 2016 08:33 IST
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inance Minister Arun Jaitley on 28 November 2016 introduced the Taxation Laws (Second Amendment) Bill, 2016 in the Lok Sabha. The Bill that amends tax laws seeks to impose a higher rate of tax and penalty in respect of undisclosed incomes.

This amendment bill has proposed to tax at 50 percent the unaccounted demonetised cash that is disclosed voluntary till 30 December 2016.

Highlights of the Taxation Laws (Second Amendment) Bill, 2016

• It says, up to 85 percent tax and penalty will be levied on undisclosed wealth that is discovered by authorities after 30 December 2016.

Lok Sabha passes Taxation Laws (Amendment) Bill, 2016

• The Bill proposes a Pradhan Mantri Garib Kalyan Yojana (PMGKY) 2016 wherein the unaccounted, now banned 500 and 1000 rupee notes, deposited in banks between 10 November and 30 December 2016, will be taxed at 30 percent plus a 10 percent penalty. A 33 percent surcharge on the tax will take the total levy to 50 percent.

• The Bill proposes to amend Section 115BBE of the Income Tax Act to provide for a steep 60 percent tax and a 25 percent surcharge on it (total 75 percent) for black money holders who choose to disclose after PMGKY ends.

• The bill also inserts a new section that calls for an additional 10 percent penalty on being established that the undeclared wealth is unaccounted or black money, taking the total incidence of levies to 85 percent.

Overview of Amendments Proposed                                                       




General provision for penalty

PENALTY (Section 270A)

Under-reporting - @50% of tax

Misreporting - @200% of tax

(Under-reporting/Misreporting income is normally difference between returned income and assessed income)

No changes proposed

Provisions for taxation & penalty of unexplained credit, investment, cash and other assets

TAX  (Section 115BBE)

Flat rate of tax @30% + surcharge + cess (No expense, deductions, set-off is allowed)


TAX  (Section 115BBE)

Flat rate of tax @60% + surcharge @25% of tax (i.e. 15% of such income). So total incidence of tax is 75% approx.

 (No expense, deductions, set-off is allowed)

PENALTY (Section 271AAC)

If Assessing Officer determines income referred to in section 115BBE, penalty @10% of tax payable in addition to tax (including surcharge) of 75%.

Penalty for search  seizure cases

Penalty (271AAB)

(i) 10% of income, if admitted, returned and taxes are paid

(ii) 20% of income, if not admitted but returned and taxes are paid

(iii) 60% of income in any other case

Penalty (271AAB)

(i) 30% of income, if admitted, returned and taxes are paid

(ii) 60% of income in any other case

Taxation and Investment Regime for Pradhan Mantri Garib Kalyan Yojana, 2016’ (PMGKY)

New Taxation and InvestmentRegime

Undisclosed income in the form of cash & bank deposit can be declared:

(A) Tax, Surcharge, Penalty payable

       Tax @30% of income declared Surcharge @33% of tax Penalty @10% of income declared Total  @50% of income (approx.)

(B)  Deposit

     25% of declared incomes to be deposited in interest free Deposit Scheme for four years.

Comment: This introduction of the Taxation Laws (Second Amendment) Bill, 2016 in Parliament can be termed as a second chance to people with unaccounted money to come clean.

Why the Income Tax Act, 1961 is being amended?
The existing IT Act, 1961 is being amended due to concerns highlighting some provisions of the Act can possibly be used for concealing black money. On the other hand, experts also suggested that people or black money hoarders should be given an opportunity to pay taxes with heavy penalty instead of finding some illegal ways of converting their black money into the white one.

About the Taxation and Investment Regime for Pradhan Mantri Garib Kalyan Yojana (PMGKY), 2016

PMGKY 2016 proposed in the bill will allow the declarant to pay tax at 30 percent and penalty at 10 percent of the undisclosed income. Apart from this, they will have to pay a surcharge to be called ‘Pradhan Mantri Garib Kalyan Cess’ at 33 percent of the tax.

In addition to all these, tax, penalty and surcharge (in total approximately 50 percent), the declarant will have to deposit 25 percent of the same income in a Deposit Scheme that will be notified by RBI under the Pradhan Mantri Garib Kalyan Deposit Scheme, 2016. As proposed, this amount will be used for programmes dealing with irrigation, housing, toilets, infrastructure, primary education, health and livelihood.

Importance of collection of the unaccounted money
It would allow the government to get additional revenue, which will help it in undertaking activities for the welfare of poor. Besides, that unaccounted money after being declared or deposited will be a part of the formal economy of the country.

The bill that seeks to amend the Income Tax Act was planned in the background of the government’s notification declaring existing series of the denomination of banknotes of Rs.500 and Rs.1000 as illegal.

Till date, the evasion of taxes deprived the nation of the critical resources that would have enabled it to undertake anti-poverty and development programmes. The same tax evasion also forced the government to put a disproportionate burden on the taxpayers in form of high taxes to fulfill the leakage of revenue on part of government.


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