A bold pronouncement by the Government of banning Rs.500/- & Rs.1000/- notes to restrain black money, fake currency and terrorist aid created ripples in the country. In order to redeem and declare the undisclosed cash as their income, the holders have to deposit it into their respective bank accounts. Each suspicious bank deposit can be scrutinized by Income Tax department which thereby involves grueling exercise by IT officers. With the objective to ensure lawful compliances on unaccounted income/cash disclosures and to curb illegitimate means of manipulating tax departments, the Government has introduced certain penal provisions in IT laws that are expected to support the purpose of demonetization.
Amendments made to the income tax act in view of demonetization
In view of demonetization, Lok Sabha, the lower house of the Indian Parliament, has recently passed Income Tax amendment bill which highlight following propositions and amendments:-
Implications of these amendments to the taxation laws in India
The objective of introducing these amendments in taxation laws of India is to cover the loopholes that were possibly being used to hide black money. These proposed amendments can levy higher tax rates and severe penalties, which can ensure that defaulters can come forward to declare their undisclosed income to prevent exorbitant penalties which can be levied if income is later discovered by IT assessors. This way the Government is giving the defaulters a chance to come clean by way of paying applicable penalty. It will eventually enable the government to generate more revenue which can be utilized for public welfare functions and for the betterment of Indian economy.
The amount deposited in Pradhan Mantri Garib Kalyan Deposit Scheme, 2016 can be utilized for several welfare purposes such as health, infrastructure, irrigation etc.
The declarant (i.e. individual, company or entity) must provide satisfactory explanation to the IT officer about his source of income/assets/cash received. In present context, the definition of satisfactory explanation is not yet clearly defined and there is a need to issue guidelines/instructions on the same. Also, the powers of tax authorities have to be clearly defined as it would help in conducting investigations and in getting effective results.
Then, presently, these amendments are not granting any exemptions/deductions or exceptions in its new disclosure rules. It is quite a drawback for taxpayers who are honest and can explain their source of income received. In consideration to previous announcement in wake of demonetization that there would be no investigations on any deposits upto Rs.2.5 Lakhs in bank accounts has not been properly outlined in proposed amendments and can be a matter of concern. In proposed amendments, the Government could have made exemptions to amount deposited under Rs.2.5 lakhs. It would have eased the fears of common and honest taxpayers.
General provisions with regard to penalty
Provisions with regard to taxation/penalty on inexplicable income, cash, credit, investment or any other assets
In Cash searched and seized Cases - Applicable penalty as per the Act
Proposed amendments in the said provision:
Pradhan Mantri Garib Kalyan Yojana, 2016 – A new taxation and investment scheme recently introduced provides that any undisclosed income can be declared via cash/bank deposit will also be taxed at following rates:
Deposit: Such declared income can also be deposited up to 25% only in an interest free deposit scheme for 4 years.
The legislative amendments in Indian Income Tax laws, in order to deal with the danger of black money after demonetization, are considered to have significant implications on the economy as a whole. The introduction of severe penal laws is a right move in the right direction but it needs careful implementation where its effects should be considered from comprehensive perspective. The authoritative power of Income Tax authorities has to be outlined; the contribution of honest tax payers has to be seen to evade confusion and to prevent any kind of menace from black money disclosures must be considered in order to issue rules, clarifications, guidelines or forms pertaining to disclosures and to execute the proposed amendments.