taxation law

In this blog post, Anshritha Rai, a law student at ILS Law College, Pune, writes on taxation laws second amendment.

Dodging the payment of taxes strips the country of revenue that could instead be diverted towards welfare and development schemes. In order to tackle the issue of black money, the Government enacted the policy of demonetising bank notes of the value of Rs. 500 and Rs. 1000.

Post the withdrawal of these bank notes, it was feared that the provisions of the Income Tax Act, 1961 would be misused to launder black money. In order to evade the brunt of taxes, defaulting taxpayers were attempting to account their undisclosed income as business income and income from other sources. In this backdrop, the Taxation Laws (Second Amendment) Bill, 2016 was introduced which seeks to amend the 1961 legislation to see to it that declarants pay a higher rate of tax. The Bill proposes to provide the defaulting assesses with the option to pay taxes that will carry with it stringent penalty provisions as opposed to permitting them to conceal their black money.

In early 2014, Narendra Modi along with the BJP had vowed to ‘bring back’ black money hidden outside the nation within a period of 100 days of being elected. Efforts made in this direction consisted of constituting a ‘special investigation team’ for investigating the issue of black money and adopting a hard line by enacting strict laws. It also included mandating the inclusion of one’s Aadhar and passport number while filing income tax returns and disclosure with regard to both national and foreign assets.
Soon after the demonetisation programme came into effect, large amounts of unaccounted and undisclosed income entered the formal economy and was deposited in banks. The Bill was passed by the Lok Sabha on November 29, 2016 primarily to curb black money and prevent such money from being converted. It sought to provide an opportunity to defaulting tax payers to deposit their money and place it in the banking system.

Passed by the Lok Sabha, under the Bill, a scheme titled ‘Taxation and Investment Regime for Pradhan Mantri Garib Yojana, 2016 has been proposed. Here, the defaulting assesse is obliged to incur a tax rate of 30% of his or her undisclosed income and it levies a penalty amounting to 10% of the entire undisclosed income. A proposal of imposing an additional charge of 33% titled ‘Pradhan Mantri Garib Kalyan Cess’ has also been advanced. The heavy penalty imposed and surcharge totals to a tax rate of nearly 50%. Alternatively, a stricter penalty up to 85% will be levied on individuals who fail to disclose their incomes and are caught. The assesse is also required to deposit in a Deposit Scheme, 25% of the total undisclosed income. This Scheme is yet to be announced by the apex bank under the ‘Pradhan Mantri Garib Kalyan Deposit Scheme, 2016.’ It would be known as the ‘Pradhan Mantri Garib Kalyan Cess’ and will be utilised for the welfare of economically weaker sections of society. The deposit made will not earn any interest whatsoever and there will be a lock-in period of 4 years. The revenue collected is to be injected in programmes of housing, sanitation, health, education and so on, as laid down under the Statement and Objectives of the Bill.

Once the Bill was passed by the Lower House amid disruptions and several objections by the Opposition, it was soon clarified that the Bill will not be applicable to jewellery. Presently, cases of unaccounted investment in assets are regulated by section 69, 69A and 69B of the 1961 Act. Moved by Finance Minister Arun Jaitley, the Bill does not propose any modifications in this regard What the Bill primarily proposes is to amend the extant Income Tax Act, 1961 and the Finance Act of 2016. Under the current regime, tax is imposed in case of unaccounted income where the individual is unable to disclose its source. The Bill intends not only to enhance the applicable rate of tax and additional tax on this income but also levy a stiffer penalty. It proposes to increase the rate of tax from the subsisting 30% under section 115B of the Income Tax Act to 60%.

While the Bill prescribes for exemption from wealth as well as other taxation laws, it does not provide immunity from being prosecuted by the authorities for offences in relation to the Foreign Exchange Management Act, The Prevention of Money Laundering Act, the Prohibition of Benami Property Transactions Act, 1988, the Unlawful Activities (Prevention) Act, 1967, the Black Money (Undisclosed Foreign Income and Assets), Imposition of Tax Act, 2015 and the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992.

On coming into force, it can effectively endorse the campaign against black money. It seeks to bring black money into the mainstream and the deterring provisions included in the Bill will instil fear of holding black money. Providing a window to black money hoarders, the Bill is symbolic of the first giant leap towards a war against black money.

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