The Centre on Monday opened another window to enable holders of undisclosed cash to deposit the money in their bank accounts after paying an effective tax of 50 percent and locking up a part of the sum for four years. Speculations have been rife about the scheme for a week. The Opposition had dubbed it as a “new Fair and Lovely scheme, coming to convert black money into white” by paying a tax.
The amnesty scheme – the Pradhan Mantri Garib Kalyan Yojana (PMGKY) – has been designed to give tax evaders a second opportunity this year to disclose cash that has become worthless after the demonetization of Rs 500 and Rs 1,000 notes on November 8.
Union finance minister Arun Jaitley said while introducing the Taxation Laws (Second Amendment) Bill in the Lok Sabha that the scheme will come into effect from a date the Centre may notify in the official gazette. Many reckon that the scheme will run until December 30, the last date for depositing the old notes with commercial banks. Revenue secretary Hasmukh Adhia said: “We will notify the last date after the bill is passed but it is likely to be December 30.”
Adhia said the tax department would not quiz the declarants about the sources of the funds deposited with the banks since November 10 if the entire income was declared and 50 percent effective tax paid on the disclosures. He added the government might take more steps against black money after December and asked people to take advantage of the PMGKY scheme.
The disclosures will enjoy immunity from wealth tax, civil and other taxation laws. However, there will be no immunity from the Foreign Exchange Management Act (Fema), Prevention of Money Laundering Act (PMLA) and narcotics and black money laws, Adhia added.
The government said that declarations of other forms of undisclosed income – unexplained credit, investments, bullion and jewellery holdings, and other assets including hundi notes – would be taxed at an effective rate of 75 percent, which includes a tax of 60 percent of the amount and a 25 percent surcharge.
The assessing officer will have the discretionary power to slap a 10 percent penalty on such disclosures, which could raise the effective rate of tax to 85 percent.
The cash declarants will have to deposit 25 percent of the undisclosed income in a scheme, to be notified by the government in consultation with the RBI. This deposit shall bear no interest and the amount deposited can be withdrawn after four years from the date of the deposit.
The tax, surcharge and the penalty will have to be paid before the filing of the declaration, the tax amendment bill said.
The money from the scheme will be used for projects in irrigation, housing, toilets, infrastructure, primary education, primary health and livelihood so that there is justice and equality, said the Statement of Objects and Reasons of the Bill.
The law will now be debated in the Lok Sabha and passed before the end of this week. Any amendment to the income tax act is treated as a money bill. This means that the Rajya Sabha, which is controlled by the Opposition, cannot reject or amend it.
The winter session of Parliament is slated to end on December 16 but that could be extended if needed.
Banks have reported that the exchange and deposits from November 10 to 27 have amounted to Rs 844,982 crore. During this period, withdrawals from bank accounts and ATMs totaled Rs 216,617 crore.
Sudhir Kapadia, National Tax Leader, EY India says “It is expected that considerable amounts of unaccounted cash and bank deposits will come under this alternative PMGKY scheme as the base case outcome of 75%/82.% tax would make the risk of later detection much higher for such taxpayers”.