The Government of India proposed to announce The New Income declaration Scheme, 2016 also called as revised IDS under the income tax Act. here we provide Information and Practical aspect regarding black money to white money with new IDS, 2016, which proposed after Demonetization of a rupee, banned of 500 and 1000 notes.
if you are thinking about New Income declaration scheme and want to learn about it more, not only taxation point of view but also a practical point of view. we also give you its consequences if you go with new income declaration scheme or want to convert your (unaccounted) white money to black money. we suggest you, do proper homework and full understanding and guidance before go with this new scheme.
Black money means your income on which you do not pay tax, which required under law. it is unaccounted money on which government authority not able to collect the tax.
White money is income on which you paid tax and government received revenue on such income. it also called accounted money because is show on books of account.
Why Govt. Introduce New Income Declaration scheme:
After demonetization of 500 and 1000 noted, many people careful regarding what money they have whether black money or white money, some people are converting money through various sources. it seems that after note ban Total deposits in Jan Dhan accounts have increased to Rs 64,252.15 crore.
hence government feels more panic regarding the account which is inactive and has a zero balance now fill with full of money.Income Tax Department on Friday found that undisclosed amount of Rs 1.64 crore deposited by people who never filed income returns into Jan Dhan accounts
It seems that after note ban Total deposits in Jan Dhan accounts have increased to Rs 64,252.15 crore. hence government feels more panic regarding the account which is inactive and has a zero balance now fill with full of money.Income Tax Department found that undisclosed amount of Rs 1.64 crore deposited by people who never filed income returns into Jan Dhan accounts. This might people have black money, they converting with new notes using people have Jan Dhan Account.
Income Tax Department found that undisclosed amount of Rs 1.64 crore deposited by people who never filed income returns into Jan Dhan accounts. This might people have black money, they converting with new notes using people have Jan Dhan Account.
So the government has to do something because of deposit amount in their own account then they have to pay tax with the penalty which is may go up to 60% To 90%, hence people are finding their own ways of converting Black money to white money. So government smartly planned to get whole money from taxpayer without hurting taxpayer.
What is New Income Declaration Scheme ?
With the introduction of an Income Tax Amendment bill in Parliament on 28 Nov 2016, the government has proposed a new income disclosure scheme under the name of the Pradhan Mantri Garib Kalyan Yojana 2016 and simultaneously proposed plugging certain loopholes in the Income Tax Act which could have been exploited by black money holders.
The government has offered the carrot – the least tax option of the Garib Kalyan Yojana – and shown the stick and closed the loopholes: the hiked tax and penalties under Sections 115BBE and Section 271AAC and Section 271AAB.
One who declared his undisclosed income under this regime shall be required to pay
tax @ 30% of the undisclosed income,
penalty @10% of the undisclosed income.
Further, a surcharge to be called Pradhan Mantri Garib Kalyan Cess @33% of tax is also proposed to be levied.
totaling to approximately 50%
In addition to tax, surcharge, and penalty (totaling to approximately 50%), the declarant shall have to deposit 25% of undisclosed income in a Deposit Scheme to be notified by the RBI under the ‘Pradhan Mantri Garib Kalyan Deposit Scheme, 2016’. No interest will be paid to the owner for this. After four years the owner can reclaim his money (25%)
comparison of Existing provision and amended provision:
Existing provision and New IDS
General provision for Penalty
Under -reporting -50% of tax & Misreporting – 200% of tax
No changes proposed
Provisions for taxation & penalty of unexplained credit investment, cash and other assets.
Tax (Section 115B8E)-Flat tax Rate of 30% + Surcharge + Cess (No expense, deductions and set-off is allowed)
Income Tax (Section 11588E) – Flat tax rate of 60% + Surcharge of 25% of tax(i.e. 15% of such income). So total tax impose 75%. (No expense. deductions and set-off is allowed) And Penalty (Section 271 AAC) if Assessing officer determines income referred to in section 11585E. penalty @10% of tax payable in addition to tax (including surcharge) of 75%
Penalty for search seizure cases
Penalty (271 AA13)(1) 10% of Income, if admitted, returned and taxes are paid. (ii) 20% of Income. if not admitted but returned and taxes are paid (iii) 60% of Income in any other case.
Penalty (271 AAB)(i) 30% of Income, if admitted returned and taxes are paid. (ii) 60% of Income in any other case.
Taxation and investment regime for Pradhan Mantri Garib Kalyan yojna. 2016 (PMGK)
New taxation and investment regime.
(a) Tax. Surcharge. Penalty payableTax @30% of income declared. Surcharge @33% of tax Penalty @10% of income declared. Total @50% of income (approx.) (b) 26% declared income to be deposited in interest. Free Deposit Scheme for four years.
How much tax one would have to pay on Undisclosed Income under Pradhan Mantri Garib Kalyan Yojana 2016
For Undisclosed income of Rs 10 lakh
Tax @ 30% of the undisclosed income, Tax will be 3 lakh
Penalty @10% of the undisclosed income, penalty will be Rs 1,lakh
Surcharge @33% of tax i.e 33% of 3 lakh will be Rs 99,000
Total tax & penalty payable: Rs 4,99,000
And above that, 25% of undisclosed income in a Deposit Scheme i.e Rs 2.5 lakh will be locked in for 4 years without accruing any interest.
The Key Highlights of this new scheme are as follows:
It’s a disclosure scheme called the Pradhan Mantri Garib Kalyan Yojana (PMGKY) 2016 allows people to deposit money till April by paying 50 per cent of the total amount — 30 percent as tax, 10 percent as penalty and 33 percent of the taxed amount — that is 10 percent — as Garib Kalyan Cess.
So the taxes and levies will equal nearly 50 percent of the deposit. 25 percent of the money that remains after taxes will be available to the account holder.
The other 25 percent or rest of the black money that’s being converted will be used by the government for four years in a special new fund that will be called the Pradhan Mantri Garib Kalyan Yojana and will be used to fund welfare schemes. No interest will be paid to the owner for this.
If the owner refuses the option of the government bond mentioned above, 85 percent of the amount will be taken in taxes and penalties
For the money that is found in raids, taxes and penalties will take nearly 90 per cent of the amount, leaving 10 per cent with the owner.
It is almost certain to be cleared in this winter session of parliament because it is being considered by the Lok Sabha, where the government has a huge majority
As a Money Bill, it will be reviewed by the Rajya Sabha, but cannot be rejected by the Upper House, where the government is in a minority.
Why Should you not go with this as follows, Person might feel that this scheme is good as, we can become free by paying 50% of tax now let’s analyze it
If you deposited 10 Lakhs then you can withdraw only 25 % i.e 2.5 lacks rs. and further 25 i.e 2.5 lacks after 4 years without interest.
The money you received after 4 years, its present value if 10% discounting factor ( generally minimum such amount of benefit given by mutual fund) is taken. then rs 2.5 lacks present value is rs. 170,753.36 that means your loss is 79,246.63 on interest, which is 7.92 % of 10 lakhs. which means you actually paid Tax of 57.92 % in term of present value.
There is no guarantee that based on your this income, income tax department may suspect your previous year income and open case in scrutiny or income escaping assessment.
There increase in chances to receive scrutiny notice on upcoming assessment years and overall year expense increase because of that.
Paying Tax is your social responsibility, every person has to pay tax as it used for our and society benefit, Tax is revenue of government, it required to pay under law
convert your 500 and 1000 rupee notes into new currency notes.
you convert your Black money to white money using this scheme, such money you can invest and earn money rather than nothing used.
More Sources, Which helps you to understand better and proven our content :
Circular regarding Acceptance of Cash over the Counter – Income Declaration Scheme 2016 click here
Circular regarding Accepting 500 and 1000 notes for payment of Tax, penalty, surcharge under New IDS, Up to December 15, 2016, of Indian bank Association Click here
OLD – IDS 2016 [ ONLY FOR REFERENCE ]
OLD THE INCOME DECLARATION SCHEME, 2016 Click here
OLD THE INCOME DECLARATION SCHEME RULES, 2016 Click here
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