The tax liability on those depositing — in scrapped banknotes — amounts higher than they can explain with their sources of income could be lower than what “concealed income” suffers currently under the Income Tax Act, but still be high enough to be a deterrent. The caveat is that the depositor will need to voluntarily disclose the unaccounted wealth to the taxman. If the unaccounted cash held is sought to be hidden and not shown in the income tax return for the current financial year, the tax burden will be as high as 90%, penalty included.
The government is proposing to amend the Income Tax Act to tax deposits without matching income in scrapped currency notes up to December 30 at 50% if they are disclosed in FY17 tax returns. Additionally, 50% of the post-tax amounts will be locked in for four years and will be used by the government for rural development projects. If such deposits are not shown in the FY17 I-T return, they will be taxed at “60% plus 30% penalty”, an official source said, confirming that these were approved by the Cabinet on Thursday. A Bill to amend the I-T Act will be tabled in Parliament next week, he added.
Currently, under Section 271 (1) (C) of the Income Tax Act, if an assessee is found to have concealed income or “furnished inadequate particulars of income”, she would not only be liable to the relevant tax but a penalty of 200% of tax. When revenue secretary Hasmukh Adhia had earlier replied to a query in the context of the scrapping of Rs 500 and Rs 1,000 banknotes, he had mentioned that the same liability would be imposed on persons depositing in bank accounts above Rs 10 lakh without matching income in these notes. However, tax experts opined that since the depositor has the option of showing all or part of such deposits as legitimate income as she filed FY17 tax returns, these could not be termed “concealed income” and so applying Section 271 (1) (C) might fail to stand legal scrutiny. Despite this, the government decided to change the I-T law to arm itself to impose the same level of tax liability on “demonetisation” deposits without matching income not even disclosed in the FY17 returns.
Unaccounted wealth disclosed under the recently concluded Income Disclosure Scheme attracted 45% tax. The reasonably successful scheme saw disclosure to the tune of Rs 67,000 crore. An earlier scheme launched by the Modi government under the Undisclosed Foreign Income and Assets (Imposition of Tax) Act levied 60% tax on those who disclosed such income/assets and 120% (including penalty) for those who chose not to. The scheme brought to the fore less than R4,000 crore of hidden foreign income/assets. Terming the IDS a huge success, finance minister Arun Jaitley said in Parliament in October that it could not be compared with the 1997 VDIS scheme of the then UF government, where the effective tax rate was in single digit.
Although the income tax exemption threshold is Rs 2.5 lakh at present, government sources refused to commit that demonetisation deposits without matching income below this threshold would be spared from the proposed levies. This is because the government reckons that black money holders have rampantly misused others’ accounts — including the Jan Dhan accounts — to sidestep the taxman.
“Demonetisation aimed at giving rights to the poor and preventing the middle class from being exploited… Those criticising it don’t have problem with our preparedness, but (are worried) that they didn’t get time to prepare,” said Prime Minister Narendra Modi