By Srinivasan Anand.G
Budget 2019: There were reports in various newspapers that the Central government requires 10 Lakh crore rupees for Bharatmala project . Also the Modi government has an ambitious plan to invest 100 Lakh crores of rupees in infrastructure and 25Lakh crores of rupees in agriculture over the next five years. To mobilise resources for these ambitious programs, the central government must be creative and think out of the box. One area where this will pay rich dividends is modifying the regime for voluntary disclosure of black money in ITRs contained in section 115BBE of the Income Tax Act,1961.
Voluntary disclosure of black money by the assessee has a virtue. It is more productive for the government as it mobilises resources for the central government without having to take enforcement actions to detect it like income-tax raids, surveys and scrutiny assessment proceedings. However, voluntary disclosure schemes every now and then create resentment amongst honest taxpayers as to why the central government brings amnesty schemes to declare black money every now and then while an honest taxpayer who pays less due to difference of opinion on taxability is made to pay heavy amount of interest under sections 234A, 234B and 234C along with the tax, the central government attempted to strike a balance between the two and amended section 115BBE of the Act to encourage voluntary disclosure of black money in ITRs .
This regime is open on an on-tap continuing basis unless the same is discontinued by further amendment. Under this scheme in section 115BBE(1)(a), one can pay income-tax at the effective rate of 78% (60 % tax rate plus 25% surcharge plus 4% health and education cess) on tax-evaded money in any financial year(by 31st March) and disclose tax-evaded amounts and tax paid in Income-Tax Returns of the assessment year relevant to that financial year. There will be no interest under section 234A, 234B or 234C of the Act.
If instead of voluntary disclosure, these are detected in a raid, assessee will have to pay a penalty of 30% or 60% in addition depending on whether he co-operates or not. If detected otherwise than in raid, the penalty is 10% in addition. There is no amnesty under any other law by reason of the declaration in ITR. While on paper, this regime looks fair to honest taxpayer and wielding the proverbial carrot and stick approach, it yields less results in practice. Even tax-evaded money is hard-earned money and one who has earned it thinks”Why pay 78% now? Let there be a raid and then I will see”.
In order to incentive voluntary disclosure in ITRs, the Finance Minister needs to amend the regime in section 115BBE(1)(a). Bring down the effective tax rate from 78% to 40% of the amounts declared and require the declarant to invest further 35% of amounts declared in Bharatmala Bonds or Infrastructure Bonds issued by Govt carrying a low tax-free interest rate of say 3% and locked in for 10 years. Making this modification will be a win-win for both the central government and the declarant. Declarant will feel that he is getting back his 35% at least after 10 years and he gets to keep 60% of his voluntarily declared money whereas currently he gets to keep only 22% of the amount voluntarily declared. The central government will be raising massive resources at zero interest cost or at 3% interest cost.
In case, amount is detected through raids or surveys, the present regime of 78% plus penalty should be applied mercilessly.
(The author is Senior Consultant, M/s Taxmann Publications Pvt Ltd. Views are the author’s personal)