Procedure to declare Black Money under Pradhan Mantri Garib Kalyan Yojana:
To curb the black money, fake currency and apply a break on the terror financing activities, the government of India took the revolutionary step to demonetise Rs. 500 and Rs. 1000 currency notes on November 08, 2016. Since then, there has been a lot of money inflow into the banking system and around Rs. 11 lakh crore of deposits has been made until November 30, 2016, as per the latest confirmation by the Reserve Bank of India (RBI). Another Reserve Bank of India (RBI) data reveals that the total value of Rs. 500 and Rs. 1000 currency notes floating in the market was Rs. 14.18 lakh crore as on March 31, 2016. So, this 11 lakh crore of deposits accounts for nearly 80% of the aggregate currency which has been banned.
Now with such an enormous amount of deposits coming into the banking system, it raises doubt over the very objective of demonetisation. As per the experts, if 90% of banned notes get deposited in the banks, the entire exercise to curb the black money can prove to be a failure. Thus, to prevent such situation and strengthen its grip on such income tax evaders, the government has come up with the initiative to give another chance to the black money holders thereby allowing them to declare undisclosed income and pay taxes along with penalties in accordance with the “Pradhan Mantri Garib Kalyan Yojana (PMGKY)”.
What is Pradhan Mantri Garib Kalyan Yojana all about?
This scheme was launched in April 2015 by the Hon’ble Prime Minister Narendra Modi. It was launched as a poverty alleviation program in India. Some of the key features of this scheme are listed as under:
• Under the scheme workshops will be organised for the general public.
• The scheme’s primary agenda is to improve the financial status of the weaker section of the society. In addition to this, the schemes which are yet to be implemented will be discussed in these workshops.
• This scheme will have Member of Parliament participating in the workshops so that they can have a close look at the schemes being introduced by various departments and the problems associated with the implementation of such schemes.
• Any person from the general public can be a part of the scheme and attend the workshops.
• The first workshop under the scheme was conducted on April 19, 2016.
How to declare the undisclosed income under the Pradhan Mantri Garib Kalyan Yojana?
As per the Taxation law (second amendment bill), 2016 there are three steps involved in the declaration of the undisclosed income/ black money and avail the Pradhan Mantri Garib Kalyan Yojana:
Step 1- Declaration of cash or deposits:
Under the provisions of the scheme, any person may make a declaration on or after the date of commencement of the scheme, in respect of any income in the form of cash or deposit held with RBI, any banking company or co-operative bank, , any Head Post Office or Sub-Post Office or any other entity as may be notified by the Central Government in the Official Gazette. This income will be taxed under the Income-tax Act for any assessment year commencing on or before the 1st day of April 2017.
Note: No deduction in respect of any expenditure or allowance or set-off of any loss shall be allowed against the above-declared income.
Step 2- Payment of Tax and making a deposit:
The person declaring the income is liable to pay 30% tax on the declared income, 33% surcharge on the tax amount, 10% penalty on the declared income thereby ending up paying an aggregate of 50% tax on the declared income.
For instance, a person pays discloses an income if Rs. 1 crore under the scheme, then he/she is required to pay Rs. 30 lakhs as tax, Rs. 9.99 lakhs as the surcharge on the tax amount and Rs. 10 lakh as the penalty on the disclosed income. The aggregate of this comes up to Rs. 50 lakhs (rounded off). Apart from this the person also has to make a minimum deposit of 25% of the undisclosed income under the scheme to avail the benefits of the scheme. This deposit will be locked under the scheme for a period of 4 years from the date of deposit.
• There will not be any interest paid on this deposit when it is handed over to the depositor.
• The tax, surcharge and penalty payable in respect of the undisclosed income have to be paid before filing the declaration.
Step 3- Complete the declaration by making payment and submitting the deposit proof:
Once the above amounts are paid, the declarant is required to declare the income in a form prescribed by the government to the Principal Commissioner or the Commissioner notified in the Official Gazette. The declaration is to be accompanied by the proof of deposit of the tax amount, surcharge paid on the tax amount, penalty and the deposit of a minimum of 25% made under the scheme.
• The undisclosed income declared under the Pradhan Mantri Garib Kalyan Yojana cannot be included in the declarant’s total income for any assessment year under the Income Tax Act.
• Any amount of tax, surcharge and penalty paid under the scheme is non-refundable.
Declaration by misrepresentation of facts
If the declaration has been made through misrepresentation or suppression of facts or without the payment of tax and surcharge or penalty or without depositing the amount in the Deposit Scheme, such a declaration will be considered as void and is deemed never to have been made under this Scheme.
What if one does not declare the undisclosed income?
If a person holding the undisclosed income chooses not to declare the income under the said scheme and waits for the income tax authorities to scrutinise his/her case and if such income is found to be from the unexplained source, then such person will be liable to pay flat tax at the rate of 60% on such undisclosed income in addition with a surcharge of 25% on the tax amount and a cess of 3% of tax & surcharge amounting the total deduction of approximately 77.25% on the undisclosed amount.
Let’s assume that the undisclosed amount is Rs. 50 lakh, the below table illustrates the calculation of the amount to be paid:
There will also be a penalty of 10% of tax i.e. Rs. 3 lakh would be added to the above amount of Rs. 38.625 lakh, so the total amount payable including the penalty would be Rs. 41.625 lakh and the person will end up paying an aggregate of approximately 83.25% on the undisclosed income. So, the actual amount left with the person will be Rs. 8.375 lakh.
Who are not eligible under the scheme?
The scheme is not available for the income generated through illegal activities. Listed below are exceptions to the scheme:
• The scheme is not available for any person against whom an order of detention has been made as per the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974.
• For any person against whom there is a prosecution for any offence punishable as per Chapter IX or Chapter XVII of the Indian Penal Code, the Unlawful Activities (Prevention) Act, 1967, the Narcotic Drugs and Psychotropic Substances Act, 1985, the Prohibition of Benami Property Transactions Act, 1988, the Prevention of Corruption Act, 1988 and the Prevention of Money-Laundering Act, 2002.
• In relation to any undisclosed foreign income and asset which is chargeable to tax under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.
• The scheme is not available to any person notified under section 3 of the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992.
The Bottom Line
Here is another chance given by the government to people for the conversion of their black money through this scheme and people should utilise the scheme to avoid ending up paying higher taxes and penalty.