You still have a chance to legalise black money


The central government on Monday introduced the Taxation Law (Second Amendment) Bill 2016 in the Lok Sabha that offers tax defaulters a chance to legalise their black money and come clean after paying tax and penalties under a new scheme, Taxation and Investment Regime for Pradhan Mantri Garib Kalyan Yojana, 2016 (PMGKY).

The followings are the key features of PMGKY:

1. A person disclosing his income under the scheme shall be required to pay tax at the rate of 30% of the undisclosed income, and penalty at the rate of 10% of the undisclosed income.

2. Further, a surcharge to be called Pradhan Mantri Garib Kalyan Cess at the rate of 33% of tax is also proposed to be levied.

3. In addition to tax, surcharge and penalty (totaling to approximately 50%), he 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.

4. This amount is proposed to be utilised for the schemes of irrigation, housing, toilets, infrastructure, primary education, primary health, livelihood, etc., so that there is justice and equality.

According to officials, the government thought of introducing the Bill after experts warned that some of the existing provisions of the Income Tax Act 1961, could be misused for concealing black money.

The Taxation Law (Second Amendment) Bill 2016 was introduced to amend the provisions of the Act to ensure that defaulting assessees are subjected to tax at a higher rate and stringent penalty provision.

Further, following the demonetization of Rs.1000 and Rs.500 currency notes on November 8, the experts suggested that instead of instead of allowing people to find illegal ways of converting their black money into black again the government should give them an opportunity to pay taxes with heavy penalty and allow them to come clean.

It will help the government get additional revenue for undertaking activities for the welfare of the poor but also ensure the remaining part of the declared income legitimately coming into the formal economy.

Overview of Amendments Proposed                                                       

General provision for penalty PENALTY (Section 270A)

Under-reporting – @50% of tax

Misreporting – @200% of tax

(Under-reporting/ Misreporting income is normally difference between returned income and assessed income)

No changes proposed
Provisions for taxation & penalty of unexplained credit, investment, cash and other assets TAX  (Section 115BBE)

Flat rate of tax @30% + surcharge + cess

(No expense, deductions, set-off is allowed)


TAX  (Section 115BBE)

Flat rate of tax @60% + surcharge @25% of tax (i.e. 15% of such income). So total incidence of tax is 75% approx.

(No expense, deductions, set-off is allowed)

PENALTY (Section 271AAC)

If Assessing Officer determines income referred to in section 115BBE, penalty @10% of tax payable in addition to tax (including surcharge) of 75%.

Penalty for search  seizure cases Penalty (271AAB)

(i) 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 (271AAB)

(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 Yojana, 2016’ (PMGKY) New Taxation and InvestmentRegime Undisclosed income in the form of cash & bank deposit can be declared:

(A) Tax, Surcharge, Penalty payable

Tax                   @30% of income declared

Surcharge          @33% of tax

Penalty              @10% of income declared

Total                  @50% of income (approx.)

(B)  Deposit

25% of declared income to be deposited in interest

free Deposit Scheme for four years.


Big Wire

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