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The In and Out of Black Money Schemes!

Updated on: 09 Aug, 2023 11:30 AM

A lot of discussion is happening over black money and schemes to declare them successfully.With the idea of currency demonetization, there was news that all the black money holders will be liable for a 200% penalty. This created a lot of buzz and different opinions travelling all around the market. Concerns were also raised that the existing provisions of the Act could be used for hiding black money.

Thus, the Government has amended the laws to plug the loopholes vide the Amendment Bill passed in Lok Sabha .The two major amendments being Revision of Sections in the Income Tax Act, 1961 & Introduction of Pradhan Mantri Garib Kalyan Yojana, 2016.

Here's an insight of all the relevant provisions from the Act:

Section 115BBE (Tax Treatment of Unexplained Cash): The following comparison will make it easier for you to understand the tax treatment in case of depositing unaccounted money and declaring it in your income tax return.

Particulars Old Provisions New Provisions
Income assessable under which section 68, 69, 69A, 69B, 69C, 69D 68, 69, 69A, 69B, 69C, 69D
Tax Rate 30% 60%
Surcharge [if applicable] 25% of the tax payable
Total Tax Payable 30%* 75%*
Penalty on taxable income determined u/s 115BBE [as per section 271AAC] 10% (Not Applicable in case the income is declared in the return and tax duly paid)

* Education & Higher Education Cess will be charged extra

Section 271AAB talks about the penalty demanded in case of any search initiated on you. There are two rates on which this penalty is charged:

  1. 30% – where you admit about your undisclosed income, declared the manner of deriving the same, pay proper tax on it and declare such income in your return.
  2. 60% – in any other case.

Further, Section 270A has not been amended. The penalty rates for under-reporting and misreporting stay at 50% and 200%. Although, this section is not applicable for the current scenario, as sections 115BBE and 271AAB are specifically provided for the same.

It is important to note that the applicability of all the three penalty sections are mutually exclusive. The penalty will be levied as follows:

  1. In case of search penalty will be levied u/s 271 AAB;
  2. In case of tax calculated as per section 115BBE, penalty will be levied u/s 271 AAC; and
  3. In all other cases penalty will be levied u/s 270A.

The Government has further brought into effect a new scheme by the name Pradhan Mantri Garib Kalyan Yojana, 2016, let's understand the same in detail:

How to avail this scheme: By making a declaration in respect of your undisclosed income in cash or after depositing in your bank account.

Who can avail this scheme: All persons declaring their undisclosed income, except the ones who are under any kind of proceedings under other acts such as the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974, Indian Penal Code; Narcotic Drugs and Psychotropic Substances Act, 1985, Unlawful Activities (Prevention) Act, 1967, Prevention of Corruption Act, 1988 Prohibition of Benami Property Transactions Act, 1988, Prevention of Money Laundering Act, 2002, Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 and the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992.

Procedure for declaring: A declaration should be made before the Principal Commissioner or Commissioner and the proof of payment of tax, surcharge and penalty is to be attached with it. The tax, surcharge and penalty shall be paid before filing of such declaration. The procedure to be followed shall be prescribed by the Government shortly.

Quantum of amount: You can deposit as much money you want to. There is no restriction on the amount of depositing the undeclared money.

Amount of tax to be paid:

Tax Payable 30% of the income*
Pradhan Mantri Garib Kalyan Cess (Surcharge) 33% of the tax i.e. 9.9% of the income
Penalty 10% of the income
Total Amount Payable 49.9% (50% approx)

** Education & Higher Education Cess will be charged extra.

Other conditions:

  • There is a requirement for depositing 25% of your income in the Pradhan Mantri Garib Kalyan Deposit Scheme, 2016. The same will be returned to you after 4 years. Further, you don't earn any interest on the amount deposited.
  • The amount declared in this scheme shall not be included in your total income for any year.
  • No deduction or allowance or set off of any loss will be allowed from the income disclosed.
  • The amount of tax, surcharge and penalty paid is not liable for any refund.

Benefit of the scheme: If you declare your undisclosed income under this scheme, then you are immune from any proceedings and prosecution under the Income Tax Act for the amount of declared income.

Let's understand all the three options by way of the table below:

Option Availed Declared himself under the PMGKY scheme Declared while filing return of income Didn't declare take chance of being caught by Department
Black Money 10,00,000 10,00,000 10,00,000
Tax Rate 50% approx (30% tax, 9.9% surcharge, 10% penalty on income) 75% (60% tax and 15% surcharge on income) 85% approx (60% tax, 25% surcharge & 10% penalty on tax and surcharge)
Amount Payable to Income Tax Department 5,00,000 7,50,000 8,50,000

It is clear from this move that instead of allowing people to make out ways for converting their black money into black money again, the Government has given one last chance to the money hoarders to come clean by declaring the amount of money and paying the due taxes and penalties as levied. We agree that no better chance for converting your undisclosed money into legal money would have been given by the Government. So, make the most out of it!

CA Abhishek Soni
CA Abhishek Soni

Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2win is amongst the top 25 emerging startups of Asia and authorized ERI by the Income Tax Department. In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments.