Taxation
Decoding the new Tax Amendment Bill
In the wake of the recent demonetisation of Rs500 and Rs1,000 denomination currency notes, the Narendra Modi Government has now proposed several far-reaching amendments to the Income-tax Act, 1961 by way of the Taxation Laws (Second Amendment) Bill, 2016 that has been presented before the Parliament on 28 November 2016. The Lok Sabha, on 29th November passed the Bill by voice vote amid a ruckus created by the opposition parties over demonetization.
 
Here are the salient features of the Bill and its possible impact, as described by Manohar Chowdhry & Associates…
 
1. The amendments proposed in the said Bill affect the existing Sections 115BBE and 271AAB apart from bringing in a new Section 271AAC. Contrary to popular belief, there are no amendments proposed to Section 270A.
 
2. The primary reason for introducing the Bill is to prevent black money hoarders from finding illegal ways of converting their black money into white and simultaneously giving an opportunity to such persons to pay taxes laced with a heavy penalty and allow them to come clean. Hence, the Government has come up with a new Scheme called ‘Pradhan Mantri Garib Kalyana Yojana, 2016’ (PMGKY).
 
3. The Scheme allows the black money holders to declare their undisclosed income and avoid vigorous procedures under the Income-tax Act (ITA). The proposed structure of the Scheme is as under :
a. Any declarant under this Scheme can make a declaration of income only by way of cash or a deposit in any account maintained by the declarant with any banking company, post office or such other institutions notified by the Government.
b. Any income declared under the Scheme would attract a tax of 30% of the undisclosed income, a surcharge (to be known as the Pradhan Mantri Garib Kalyan Cess) @ 33% of the tax. Thus, the total tax on such income would be approximately 40%. In addition to this, a penalty @ 10% of the income would also be payable. Thus, the effective tax would amount to approximately 50% of the income.
c. In addition to the tax, surcharge and penalty paid under this Scheme, an additional amount which shall not be less than 25% of the income needs to be deposited under the Pradhan Mantri Garib Kalyan Deposit Scheme, 2016. The amount deposited under such Scheme can be withdrawn only after four years from the date of deposit and would not earn any interest.
d. The period of the Scheme and the manner of the declaration is yet to be notified by the Government.
 
4. A person who has not opted for this Scheme, and is subsequently found to be holding such undisclosed income would be charged with a tax (under Section 115BBE) @60% of the income and a surcharge of 25% of the tax. The total tax payable in such cases would be 75% of the income. Also, a penalty under a new section proposed to be inserted with effect from assessment year (AY) 2017-18 - Section 271AAC @10% of the tax and surcharge would also be payable. The penalty would work out to 10% of 75% i.e. 7.5% of the income. Thus, in such cases, the total tax outgo would be 82.5%, as opposed to 50% under PMGKY.
 
5. In the case of any undisclosed income unearthed by way of search, certain amendments are proposed in Section 271AAB whereby two scenarios are possible:
 
a) Where the concerned tax payer admits and offers to tax the undisclosed income in his return of income and pays the taxes voluntarily and
b) Any other case
 
In the first scenario, penalty on such undisclosed income would be levied @30% of the income whereas, in the second scenario, penalty would be levied @60% of the undisclosed income. 
 
6. This Scheme does not apply:
a. in relation to any person in respect of whom an order of detention has been made under the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 (popularly known as COFEPOSA):
b. in relation to prosecution for any offence punishable under Chapter IX or Chapter XVII of the Indian Penal Code, the Narcotic Drugs and Psychotropic Substances Act, 1985, the Unlawful Activities (Prevention) Act, 1967, the Prevention of Corruption Act, 1988, the Prohibition of Benami Property Transactions Act, 1988 and the Prevention of Money-Laundering Act, 2002;
c. to any person notified under section 3 of the Special Court (Trial of Offenses Relating to Transactions in Securities) Act, 1992;
d. in relation to any undisclosed foreign income and asset which is chargeable to tax under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.
 
7. Any declaration made under this Scheme would not be admissible in evidence against the declarant for the purpose of any proceeding under any Act (except to the extent mentioned in para 7 above.
 
8. The income that is offered to tax under this Scheme would be the gross income and no deductions for any expenses or set off would be allowed from the same.
 
9. The amount of tax, penalty etc. payable under the Scheme has to be paid before submission of the declaration under the Scheme and no portion thereof would be refundable to the tax payer.
 
The Chartered Accountancy firm says, “The past few days have seen a lot of action on the part of the Government in its attempt at unearthing black money, bringing to book tax evaders and in channelizing the massive amounts of unaccounted funds into the official economy. The latest tax amendments proposed are in line with this concerted effort.” 
 
The summary of the various amendments can be noted from the table below, which shows the tax outgo in various situations:
 
 
As can be seen from the above, the penalties prescribed and the total tax outgo that a tax evader would face are very stiff. 
 
“We welcome the government’s move to punish those who have brazenly evaded taxes and stayed away from contributing towards the nation building process for decades,” the CA firm added.

 

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COMMENTS

vinod sharma p

4 days ago

As a responsible citizen, I fully support the PM on his efforts to unearth the black-money and dutifully follow the guidelines issued. BUT... all this is worth only when there is a tangible benefit to the common-man in terms of lower inflation or better infrastructure or reduced tax rates for the diligent tax payers etc. I am eagerly looking forward to the upcoming budget.

Mehernosh Dordi

4 days ago

All honest citizens should welcome these measures by the government. But the government should also immediately speed up the cases against tax evaders who have been caught and give them exemplary punishment.

PRADEEP Bhat

4 days ago

good decision. Only 2% of people pay tax. Rest dont pay. Good decision.

Krishna Kumar

6 days ago

In England there is a campaign for plain english. There doesn't seems to be any consistency in how a penalty is interpreted. In one case the penalty is a proportion of the income. In another instance the penalty is a proportion of the tax. Plain english would be the first step in any reform we expect in future.

Fuel prices and RBI policy to fuel passenger vehicle demand in 2017: Fitch
Low fuel prices coupled with an accommodative monetary policy from the Reserve Bank of India (RBI) is what credit rating agency Fitch Ratings expects to support demand for passenger vehicles in 2017.
 
According to Fitch, the demonetisation of 500/1,000-rupee notes would impact sales of luxury cars and not sales of other automobiles -- two wheelers, small cars and commercial vehicles.
 
"Undeclared income is less often used to buy small cars, and two-wheeled and commercial vehicles, so sales of these are likely to stabilise quickly once the liquidity situation in the economy is restored in the near future," Fitch said on Wednesday.
 
"We expect PV (passenger vehicles) sales to increase by seven per cent - nine per cent, after rising 12.3 per cent YoY (Year-on-Year) in April-September 2016, due to improving consumer confidence, new model launches and the lifting of a ban on the sale of diesel cars in Delhi," Fitch said about 2017 sales outlook for automobiles.
 
According to Fitch, the rollout of the Goods and Services Tax (GST) in its current form would be largely price neutral because the proposed rates are in line with the existing level of taxes.
 
Fitch expects auto sales to benefit from India's strong gross domestic product (GDP) growth, which the agency forecasts at 6.9 per cent in the fiscal year ending March 31, 2017, (FY17) and 7.7 per cent in FY18.
 
The credit rating agency said sales of medium and heavy commercial vehicles (MHCV) rose about 30 per cent YoY in FY16, although they decreased slightly by 1.2 per cent YoY during April-September 2016.
 
Fitch expects MHCV sales to improve with progress on stalled infrastructure projects and gradual recovery in mining activity after metal prices bottomed out in 2016.
 
The agency said MHCV sales to benefit from buying ahead of an expected increase in prices when new emission standards (BS IV) are implemented from April 1, 2017.
 
Fitch expects light commercial vehicles (LCV) sales to continue to rise, and a significant demand boost if the GST -- which will create an unified national market that would allow more efficient movement of goods -- is rolled out in April 2017 as planned.
 
Similarly, sales of two-wheelers would continue to rise due to rise in public sector wages and healthy rural spending.
 
Two-wheeler exports are likely to remain subdued due to macroeconomic weakness in Latin America and Africa, following a 12.4 per cent YoY decline in April-September 2016.
 
Many companies, including Maruti Suzuki, Toyota and Royal Enfield, have announced plans to expand capacity, which will increase capex.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

 

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COMMENTS

B. Yerram Raju

5 days ago

All wide-bodied and luxury cars should be manufactured for export markets.

B. Yerram Raju

5 days ago

Narrow roads of India sport wide-bodied cars. Why not car makers realise that the small cars carry big ticket sales than the luxury cars? Why not the Government modify its tax structure to incentivise production and sale of small cars and insist on all the Government officers to have only small cars for ferrying them from office to home? The moment a bureaucrat becomes eligible for official car the chosen car is luxury car!! All the politicians also have only luxury cars and at huge expenditure to the exchequer as these consume more fuel than the small or medium sized cars.

Supreme Court orders playing of National Anthem in movie theatres
The Supreme Court on Wednesday ordered that the National Anthem be played in cinema halls before the start of a movie.
 
The anthem would be accompanied by the image of the Tricolor on the screen.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
 

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COMMENTS

vinod sharma p

4 days ago

As a common-man seeing the ground reality, I am not very happy with this decision. Reason is that, I know the majority of the people in the audience will not feel the real respect due for the national anthem if it is forcefully played like this.

Simple Indian

5 days ago

This is yet another case of judicial overreach. Courts should not impose nationalism / patriotism on citizens, as respect for nation should be inspired by actions of our leaders. All MPs take oath on Constitution but go on to abuse it during their tenure. It's time the Courts took suo motu action against public servants who have ruined the country through rampant omnipresent corruption. Such issues of national interest are far more important than SC entertaining such silly PILs (incl. Santa-Banta jokes PIL).

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