After PM Modi's surgical strike on black money, cases of cash crunch, money laundering, and illegal exchange of discontinued notes started to surface which led to economic fiasco. So, after analyzing the recent developments, a new scheme Pradhan Mantri Garib Kalyan Yojana, 2016 (PMGKY) for disclosure of unaccounted money has made its way through Lok Sabha .
Pradhan Mantri Garib Kalyan Yojana, 2016 gives an opportunity to all the black money hoarders to come out clean by declaring their undisclosed income and paying heavy taxes and penalty. The provisions of scheme require declarants to pay-
1. Tax @30% of the undisclosed income.
2. Penalty @10% of the undisclosed income.
3. Surcharge @33% on the amount of tax.
Which amounts to approximately 50 % tax of the undisclosed income.
Apart from paying tax and penalty, the declarants will also be required to deposit 25% of the amount disclosed in the Pradhan Mantri Garib Kalyan Yojana, which will be interest free deposits locked in for a period of 4 years.
After analysing the provisions of the new scheme and the amendments made in the existing provisions of the Income Tax Law, a person holding black money is left with three options-
(a) Declaring income under PMGKY, by filling a declaration form attracting a tax of 50% (30% tax, 33% surcharge on tax, 10% penalty) and depositing an additional 25% of income in the Pradhan Mantri Garib Kalyan Yojana, 2016 (which is refundable after 4 years)
(b) Declaring income, while filing the return of income [i.e. not declaring the income in the PMGKY but declaring at the time of filing the return] attracting a tax of 75% (60% tax and 25% surcharge on tax). The rate of 75% is as per the amended section in Income Tax Law.
(c) Not declaring income and taking chance with the Income Tax Department and attracting a tax of 85% (60% tax, 25% surcharge on tax and 10% penalty) when caught.
In this case, prosecution provisions will also be applicable.
Now, let’s say, there are three friends Pranay, Tushar and Mohit holding black money. Looking at the recent scheme of the Government, Pranay shows interest in the scheme, Tushar is sceptical whether to declare or not and Mohit is unaffected.
All three friends decide to choose their own respective way.
Pranay decided to declare the amount deposited in his bank account by filling the declaration form under the new scheme with valid proofs of the payment made towards 50% tax and 25% under fund. He duly deposited 50% amount as tax, penalty and surcharge. Another 25% was deposited in the scheme as per the law. Finally after declaration, today Pranay is left with 25% of his income in hand, plus 25% income that he will receive after 4 years.
Tushar missed the chance of declaring himself under the scheme and later ends up declaring the amount while filing his income tax return. This way, he would have to pay 75% tax including surcharge. Finally, Tushar remains with only 25% of his black income in hands.
Mohit didn’t care of the schemes launched and takes chances with the Income Tax Department. In such a case, if department catches Mohit, he would be liable for 75% tax and an additional penalty of 10%, totalling it up to 85%. What Mohit will be left with, is a lot of scrutiny, inconvenience and 15% of his black money (If there are no further changes made in the existing law).
In addition, Mohit may also face consequences of unaccounted money deposited in his bank account and notice for re-opening his assessment, possibly u/s 143(2), 142(1), 147 or even search and seizure u/s 132. Moreover, along with all the interest and penalty, Mohit can be also liable for prosecution. Well, the rest is unsaid and unexplained.
Pranay and Tushar are really happy for making the decision at the right time, and not getting into any trouble. But, are they now completely out of it? Pranay and Tushar have paid income tax and were immune from more of income tax for that declared income, but there are other acts which can govern them, primarily Prevention of Corruption Act, 1988, the Prohibition of Benami Property Transactions Act, 1988, The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 and the Prevention of Money Laundering Act, 2002, etc.
With daily updates, it’s evident that government is clear about the black money hoarders paying it back with penalties. The black money hoarders should take this as another opportunity to come out clean and declare the money. Its time, we say that the Modi Government has played its cards, and now it’s in your hands, to play this set, leave the table or gamble more!