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The government’s new scheme on declaration of black money comes even as the deadline for paying first tax installment under the Income Declaration Scheme (IDS)— pitched as a “last chance” for those having black money to come clean — is yet to come to a close. Under the IDS, which offered a four-month window to make declaration till September 30, the first installment of 25 per cent tax has to be paid by November 2016 and taxpayers are allowed to make the payment for tax and penalty in three installments by September 30, 2017.
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The Pradhan Mantri Garib Kalyan Yojana, 2016 is somewhat similar to IDS, except that the tax rate is higher at 50 per cent and a quarter of the declared income will be locked in for four years. During campaigns prior to the IDS, the government had categorically denied any extension to the scheme. Prime Minister Narendra Modi, in his ‘Mann ki Baat’ programme on All India Radio on June 26, had said with reference to the scheme: “We can free ourselves of various burdens just by paying a fine. I have also promised that for those who voluntarily declare to the government their assets and their undisclosed income, then the government will not conduct any kind of enquiry. Not once will it be asked as to from where all this wealth came and how it was acquired. And so, this is a good chance for you to become a part of a transparent system. At the same time, I want to tell the people of the country that please consider this plan, which is up to 30th September as your last chance…” Two days later, on June 28, finance minister Arun Jaitley reiterated this. “People who have (undisclosed) income and have stayed outside the income tax net, this (IDS) is the last chance to declare them and sleep peacefully,” he said after a meeting with industry chambers and tax professionals.
But with the deposits of old currency notes of Rs 500 and Rs 1,000 notes rising sharply across the bank accounts ever since the government recalled high-denomination currency notes on November 8, alongside suspicion of black money operators and syndicates using others’ accounts to turn black money into white, the government moved amendments to the Income Tax Act on Monday to impose high penalties on unexplained credit, investments, cash and other investments. Between November 10 and November 27, banks reported exchange and deposits of old notes worth Rs 8.45 lakh crore (exchange of Rs 33,948 crore and deposits of Rs 8.11 lakh crore), as per RBI data released on Monday. During this period, an amount of Rs 2.16 lakh crore had been withdrawn by people from their accounts.
A day after the November 8 announcement on currency withdrawal, the finance ministry officials had indicated that the government would not touch people, especially small businessmen, housewives, artisans and workers, depositing up to Rs 2.5 lakh. “We would be getting reports of all cash deposited during the period of 10th November to 30th December,2016 above a threshold of Rs. 2.5 lakh in every account. The department would do matching of this with income returns filled by the depositors. And suitable action may follow,” Revenue Secretary Hasmukh Adhia had said on November 9.
On Monday, though, as against earlier assurance of no scrutiny of small deposits, the finance ministry officials said the tax department may scan accounts of individuals depositing up to Rs 2.5 lakh in case of discrepancies or suspect transactions. People splitting their cash pile and depositing smaller chunks into family members accounts will be under the taxmen’s watch, the officials said. The government moved the legislative changes to tax laws after finding that existing provisions of imposing 200 per cent penalty on misreporting on income may not be tenable on incomes that are disclosed and advance taxes on these are paid. A person declaring higher income than previous year, but paying tax at slab rate and surcharge/cess, could have escaped the levy of penalty.
Even as officials said the proposed amendments were not “technically retrospective”, the changes will kick in from eight months back — April 1, 2016. Explaining the proposed amendments to the taxation laws, Adhia on Monday said this was “not a retrospective amendment” as the financial year is still on and people have not filed returns.
Former CBDT chairperson M C Joshi said: “The amendment could have been termed retrospective had the government imposed penalty on something that had no penalty earlier. The current provisions on I-T Act already enable tax authorities to examine cases of unaccounted wealth. This (amendment) is like writing something which is already there and now they are authorised to scan suspicious accounts.”