The government moved an amendment in the Lok Sabha, seeking to change income tax laws for taxing of undisclosed income in the wake of demonetisation.
The government moved an amendment in the Lok Sabha, seeking to change income tax laws for taxing of undisclosed income in the wake of demonetisation. The proposed tax rate on people disclosing their unaccounted wealth is around 50 per cent, much higher than the 30 per cent tax rate at the highest slab.
The government said that there have been representations and suggestions from experts that instead of allowing people to find illegal ways of converting their black money into black again, the government should give them an opportunity to pay taxes with heavy penalty and allow them to come clean.
This will help the government mobilise additional revenue for undertaking activities for the welfare of the poor but also the remaining part of the declared income legitimately comes into the formal economy, the government said in its objective for introducing the amendment.
Here are key highlights of the proposed amendment to tax laws:
- According to the proposed amendment, if the declarant comes clean on his undisclosed income he/she shall be required to pay tax at 30 per cent of the undisclosed income and penalty at 10 per cent of and a surcharge of 33 per cent.
- This comes around to an effective tax rate of around 50 per cent, say tax experts.
- This is higher than the 45 per cent tax rate that was charged under the Income Disclosure Scheme, 2016, which provided a one-time opportunity to domestic black money holders to disclose wealth and come clean. The Income Disclosure Scheme was open from June to September.
- The surcharge will be called ‘Pradhan Mantri Garib Kalyan Cess’.
- In addition, to tax surcharge and penalty, the declarant shall have to deposit 25 per cent of undisclosed income in a scheme to be notified by the central government under Pradhan Mantri Garib Kalyan Deposit Scheme, 2016′.
- The deposit shall earn no interest and the amount deposited shall be allowed to be withdrawn only after 4 years of deposit.
- This amount is proposed to be utilised for the programmes of irrigation, housing, toilets, infrastructure, primary education, primary health, livelihood, etc.
- For those who continue to hold onto undisclosed cash and are caught by tax authorities, the tax rate could go up to 85 per cent.
- Revenue Secretary Hasmukh Adhia said the deterrent provisions were necessary so that people have the fear of hoarding black money.
- Deposits which have been already made from November 10 will be covered under Pradhan Mantri Garib Kalyan Deposit Scheme.