Before the new income declaration scheme, there was a loophole in the Income Tax Act. Since the demonetisation drive started, some tax experts have suggested that the tax laws offer immunity from penalty if a person discloses his unaccounted income voluntarily and pays tax on it. The view was that a person should declare income under Sections 69(A), 69(B) and 69(C) that deal with certain unexplained cash credits, investment, expenditure, etc in the current financial year. Pay tax on it and become compliant. The assessee can, then, include this when filing tax for the current financial year. The new norms actually plug this loophole.
They allow individuals to deposit money in banned Rs 500 and Rs 1,000 notes by paying 50% tax on the undisclosed income. However, the declarants will have to deposit a fourth of the undisclosed income with a four-year lock-in. The break-up works like this: the declarant declares undisclosed income, pays a tax of 30%, a penalty of 10% on the undisclosed income, and a surcharge called Pradhan Mantri Garib Kalyan Cess of 33% on the tax.
In addition, the declarant will have to deposit 25% of undisclosed income in a zero-interest deposit scheme that will be called Pradhan Mantri Garib Kalyan Deposit Scheme (PMGKDS), 2016. This money will be utilised for developmental activities such as irrigation, housing, construction of toilets and infrastructure, primary education and primary health.
There are also concerns whether the individual depositing unaccounted money would get the 25% portion invested in PMGKDS back after four years or some new amendments could be made. CAs don’t see any issue here and feel that people would get their money back as declared by the government.
People are worried whether the tax department will open up previous years' returns for reassessment
The latest income disclosure Bill does not have clear provisions on immunity
People are worried whether they may get a notice from the tax department even before they have been able to fill up the specified form for income declaration
People are also worried if the government will return the 25% deposited with it