Demonitization of 500 and 1000 notes was done with the intention of unearthing black money. Unaccounted wealth is slowly making its way back into the productive economy with seizures, deposits into Jan Dhan accounts and voluntary disclosures.Government had introduced the PMGKY Pradhan Mantri Garib Kalyan Yojana recently to control this.
The scheme to deposit old notes is winding up, and focus is now on voluntary income declaration, tax scrutiny, and utilization of cash resources for social welfare.
With this objective in mind, the government made amendments to Income Tax Act, 1961 and introduced an amnesty scheme for tax defaulters with undisclosed income.
What is Pradhan Mantri Garib Kalyan Yojana?
There has been concerns that some unscrupulous people and companies might misuse certain provisions of the Tax Act to show this unaccounted money as regular income.
To prevent this and to ensure that banned notes are accounted for, Indian Parliament approved the second amendment in Taxation Laws Act, 2016 on 15 November 2016. An alternative scheme – taxation and investment regime was introduced under this Act for Pradhan Mantri Garib Kalyan Yojana (PMGKY), 2016-17.
PMGKY aims to knock out two birds with one stone –
- Get hoarded cash back into the economy
- Use this revenue for benefit of the poor, particularly in rural areas.
This scheme is open for a short period from 17 December 2016 to 31 March 2017. After the Income Disclosure Scheme that ended on 30 September 2016, this is one last another opportunity to disclose unaccounted cash-in-hand or bank deposit without fear of prosecution.
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Salient features of this scheme –
- Any individual, HUF, AOP or business can make voluntary declaration of demonetized and undisclosed income using relevant forms.
- Declared income will be subject to tax levy of 50%, but depositors will not be sued.
- The levy breakup is 30% tax, 33% (Pradhan Mantri Kalyan Cess) surcharge on tax, and 10% penalty.
- After tax is paid, this income is declared in cash or as deposits in account with bank, post office or specified entities.
- 25% of this income must be compulsory parked in a 4-year scheme in an authorized bank. The issued bond offers zero interest and disallows premature withdrawals.
- Allocated deposits will be returned to depositor’s account at the end of 4 years.
- These deposits will be utilised to improve infrastructure, initiate welfare schemes and develop rural economy. This includes irrigation, jobs, primary education and health, housing and toilets.
Mode of declaration of black money under PMGKY
- Fill Form 1 available online at Income Tax website. Login in to your account or register with your PAN card.
- Download the form, fill it up, and upload it online or send printed form to commissioner of tax.
- Provide scanned copies as proof of tax paid, and deposit made with banks under the scheme.
- Submit form –
- Electronically with digital signature
- Electronically using EVC – electronic verification code
- Print form
- You’ll receive Form 2 as receipt from IT office within/after 30 days.
FAQ on locked-in deposits under PMGKY
- Application is available with banks authorised under Banking Regulation Act, 1949 or RBI website.
- Branches of these approved banks will receive and maintain PMGKY deposits (25% of declared income).
- The deposit will be mentioned in Bond Ledger Accounts (BLA) maintained by RBI as a credit of the declarant.
- The single payment is required between 17 December 2016 and 31 March 17. Payment can be in cash (multiples of Rs100), cheque, demand draft or electronic transfer.
- Fill Form II for depositing this money under the scheme.
- Depositors should provide PAN number (or apply for one), bank account details, and email ID at the time application. The new PAN will then be updated in bank records.
- The bank will initially provide a signed receipt under form I confirming the deposit. A certificate of Bond Ledger Accounts (BLA) will be made available at the specified branch.
- On maturity of bond, the money will be transferred to depositor’s bank account.
- The depositor had to inform the bank about nominees or legal heirs through form III, and apprise them of any changes to this information in form IV.
- The bond cannot be traded, transferred or gifted to friends or relatives. If the declarant dies within the 4-year period, money will be received by legal heirs or nominees.
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Why should you declare unaccounted income under PMGKY?
- You escape prosecution under law when you voluntarily reveal your hidden wealth.
- Penalties for income found under tax scrutiny or raids will be much higher. There may be criminal charges for such evasions.
- Income declared under this scheme will not be subject to any other tax, including standard income tax.
- Your information will be kept confidential.
TAX AND PENALTIES UNDER PMGKY SCHEME
Q1: You are a professional consultant and hoarding cash worth 25 lakhs in demonetised notes of 500 and 1000. You decide to seek amnesty under scheme and deposit money in the bank. What is your tax and cess due and the amount of BLA with RBI?
Ans: Total Tax is 50% of declared income and includes 30% tax, 33% surcharge and 10% penalty on income.
- You will be paying 30% tax on 25 lakhs – 7.5 lakhs.
- Surcharge of 33% on 7.5 lakhs – 2.5 lakhs
- Penalty of 10% on 25 lakhs – 2.5 lakhs
Total tax is 12.5 lakhs on declared income of 25 lakhs.
Compulsory deposit under PMGKY is 25% of income – 6.75 lakhs
Penalties for not declaring income under this amnesty-cum-welfare scheme
There are three likely scenarios.
- You deposit cash in bank but income in return doesn’t match assessed income –
Q1: In the above example, your returned income is 10 lakhs before tax but you deposit 25 lakhs in bank. What is your tax and penalty due on scrutiny?
Ans: Assessed income is 35 lakhs after deductions. Total Tax on assessed income and penalty for under-reporting or misreporting.
- You will be paying 20% tax on (10-5) lakhs – 1 lakh.
- Penalty for under-reporting of 50% on (25-10) 15 lakhs – 7.5 lakhs
- Penalty for misreporting of 200% on (25-10) 15 lakhs – 30 lakhs
Total tax is 8.5 lakhs for under-reporting income and 31 lakhs for misreporting income.
- You declare this money as income through tax returns –
You show undisclosed cash or bank deposits as income to pay least amount of tax.
Q1: In the above example, you deposit the 25 lakhs in bank and disclose this as income (last two years) in your return. What is your tax and penalty due?
Ans: Total Tax is 75% of declared income and includes 60% tax and 25% surcharge on tax.
- You will be paying 60% tax on 25 lakhs – 15 lakhs.
- Surcharge of 25% on 15 lakhs – 3.75 lakhs
Total tax is 18.75 lakhs on declared income of 25 lakhs.
If assessing officer comes up with a figure after scrutiny, you pay additional 10% as penalty charge.
- Penalty of 10% on 25 lakhs – 2.5 lakhs
Total tax is 21.25 lakhs on declared income of 25 lakhs.
- You fail to declare but are caught with money through search and seizure –
Q1: In the above example, your office is raided and the cash is found. What is your tax and penalty due?
- Ans: Pay 75% tax on seized income – 18.75 lakhs.
In addition to this, you pay penalty as per new rates.
- On admitting black money at time of raid, pay 30% penalty on 25 lakhs – 7.5 lakhs.
- Not admitting black money, pay 60% penalty on 25 lakhs – 15 lakhs
Total tax on raids is 26.25 lakhs and 35.75 lakhs respectively.
This table gives provides overview of existing and new tax and penalty provisions for undisclosed income.
|Tax and Penalty Provisions||Existing rates||Proposed rates|
|General provision||Penalty (Section 270A)
Tax @50% for under-reporting
Tax @200% for misreporting
(Under-reporting/ Misreporting is difference between returned income and assessed income)
|Provisions for taxation & penalty of unexplained credit, investment, cash and other assets||Tax u/s 115BBE
Tax @30% + surcharge + cess
(No deductions, expenses, set-off are allowed)
|Tax u/s 115BBE
Tax @60% + 25% surcharge on tax (15% of such income).
Total tax is 75% of income (approx.)
(No deductions, expense, set-off is allowed)
Penalty u/s 271AAC
If Assessing Officer determines income, 10% penalty on tax in addition to 75% (tax + surcharge)
|Penalty for search/seizure cases||Penalty u/s 271AAB
(i) 10% on admitted income, if returned and taxes are paid
(ii) 20% of income, not admitted but returned, and taxes are paid
(iii) 60% of income in any other case
|Penalty u/s 271AAB
(i) 30% of admitted income, if returned and taxes are paid
(ii) 60% of income in any other case
|Pradhan Mantri Garib Kalyan Yojana, (PMGKY) 2016||New Taxation and Investment Regime||Undisclosed income declared as cash and bank deposit:
(A) Tax, Surcharge and Penalty payable
30% tax on declared income
33% surcharge on tax
10% penalty on declared income
Total tax is 50% of income (approx.)
(B) BLA Deposit
25% of declared income deposited in interest-free bond for four years
(no premature withdrawals, trading, transfer or gifting allowed)
(received by legal heirs or nominees, if declarant dies before maturity of bond)
Did you find this guide on PMGKY Pradhan Mantri Garib Kalyan Yojana and undisclosed income useful?
If you know anyone who has undeclared cash at home, advise them to make use of this amnesty scheme, and avoid severe penalties later on. But, do you think PMKGY will control black money?