In this blog post, Rishabh Rai, a CS Executive an a 2nd Year Law Student from National Law University Odisha provides a detailed analysis on the Taxation Law (Second Ammendment) Bill.
Introduction
Amidst the ruckus and sloganeering by the opposition parties, the government has passed the Taxation Law (Second Amendment) bill. Arun Jaitley, The Union Finance Minister has stated that the new bill aims to plug the loopholes existing in the current legislation and to ensure that the tax evaders will not be able to legalize their black money. The finance minister in his speech stated that the amendments in Income tax law has been made considering the fact that few people are trying to convert their black money into white even after the step of demonetization. He further stated that the aim of the bill is to ensure that the undisclosed money should come into mainstream which can be used for the welfare of poor people.
In a press release on 1st December 2016 by Department of Revenue, Central Board of Direct Taxes it has been stated that The Taxation Law (Second Amendment) bill seeks to increase the existing tax rate under section 115 BBE of the act. The tax rate has enhanced the existing rate from 30 per cent to 60 per cent plus a surcharge of 25 per cent and cess. It has been clarified that the amendment section only provides rate of tax to be charged in case of undisclosed and unexplained investment in assets as it has been rumored that the amendment also includes provision for charging tax on jewelry. The chargeability of these tax is governed by Section 69, 69Aand 69B of the Income Tax act, 1961. However these Sections have not been amended by the Government. As per Section 68 of the act it has been stated that any sum which has been found credited in the books of the taxpayer, for which no explanation has been offered about the nature and source will be charged as the income of that year. Further if the taxpayer has informed about the nature and source of such credit and the Assessing Officer is not satisfied with the explanation, the income will be charged as per Income Tax act, 1961. Apart from the provision mentioned in section 68, there are also other sections which discuss similar provision. Section 69 discusses unexplained Investment, section 69A deals undisclosed money and Section 69B discussed amount of investment which has not been disclosed by the taxpayer. Similarly Section 69C and 69D deals with the undisclosed expenditure and amount borrowed or repaid on hundi.
What’s New?
The Taxation Law (Second Amendment) bill has proposed to amend the Section 115BBE of the Income Tax Act, 1961. The amendment seeks to provide for a punitive tax, penalty and surcharge on unexplained credit, cash investment, and any other assets. That taxpayer who has decided to disclose their stashed money will have to pay 30 per cent on their undisclosed income under Pradhan Mantri Garib Kalyan Yojna, 2016. Further a 10 per cent penalty will be charged on the undisclosed income and a surcharge of 33% in the name of PMGK cess. (33 per cent of 30 per cent undisclosed income). In addition to the above penalty there is a provision that that taxpayer who has decided to disclose their income will have to deposit 25 per cent of their undisclosed income with the Reserve Bank of India. The money from this scheme will be used for empowerment of poor sections of society by providing housing, infrastructure, toilets, education, projects in irrigation, etc.
On the other hand, if those taxpayers who have not disclosed these cash and are caught, the provision has been made to charge 60 per cent of the undisclosed income. In addition to this a surcharge of 25 per cent will be levied on the 60 per cent of the undisclosed income, i.e. a total of 75 per cent of the amount will be levied. Furthermore, the assessing officer can also charge an additional 10 per cent in addition to 75 per cent which has already been levied. Thus as per current provision, there is a 50 per cent penalty when the taxpayer has disclosed their income. In case of undisclosed income there is a penalty of 75 per cent and an addition of 10 per cent at the discretion of assessing officer. Thus, in cases of undisclosed income there is a penalty of 85 per cent.
In cases of disclosed income, in addition to 50 percent of the penalty, a quarter of penalty will be deposited under interest free scheme for four years in Pradhan Mantri Garib Kalyan Yojna. No question as to source of fund will be asked in case penalty is deposited under the Pradhan Mantri Garib Kalyan Yojna in the name of Garib Kalyan cess. There will be immunity to the taxpayers from wealth laws, civil law and taxation laws. However there is no immunity to the taxpayer in regard from Narcotics, black money act, FEMA and PMLA. It is to be noticed that no last date has been notified by the Union Finance minister regarding the voluntarily declaration. However it will soon be notified when it is reviewed by the Upper House.
The finance minister in his speech has stated that this step by the government is taken to curb the difference that exists between poor and the rich. Even after the step of demonetization it can be seen that people are trying methods to turn their illegal money to while thereby affecting the government policy. Before the policy of demonetization was implemented a scheme was introduced by the government giving a chance to all the tax payers who have not their income to disclose it. However less percentage of people participated in the policy whereby government has to come with a new plan. This step by the government of giving another chance to the taxpayers to disclose their income is a welcome step as it will encourage people to legally convert their black money into white. Government has stated that no legal action will be taken against black money hoarders if they validly come forward and pay the tax. It has been speculated that this time large number of people will come forward and disclose their income. However the opposition don’t seems to be very satisfied with the step of the government. Opposition has stated that government has amended the bill without even discussing the amended parts of the bill. Further they have stated that a proper debate should have taken place before amending the Income Tax. Leaders of opposite parties has also met President of India Dr. Pranab Mukherjee regarding the amendment of bill claiming that no proper discussion was taken place before the amendment was passed.
Reference
- http://www.prsindia.org/uploads/media/Taxation%20Laws/Taxation%20Laws%20(Second%20Amendment)%20Bill,%202016.pdf
- http://www.incometaxindia.gov.in/Lists/Press%20Releases/Attachments/555/Taxation-Laws-Second-Amendment-Bill-2016-1-12-2016.pdf
- http://www.incometaxindia.gov.in/tutorials/43-%20cash%20credit.pdf
- http://indianexpress.com/article/india/india-news-india/income-tax-amendment-bill-tabled-in-lok-sabha-30-pc-tax-on-undisclosed-income-demonetisation/
- https://www.taxmann.com/Budget-2016-17/budget/samd250/notes-on-clause.aspx
- http://www.moneycontrol.com/news/economy/income-tax-amendment-bill-passedls-despite-oppn-protest_8034901.html
Great analysis