Mumbai, January 19, 2017

Taxpayers, against whom a search or survey operation has been conducted, are eligible to declare their unaccounted money under the Pradhan Mantri Garib Kalyan Yojana (PMGKY) scheme, popularly dubbed as the Income Declaration Scheme-2. This is a major departure from the various previous amnesty schemes.

PMGKY was announced in the backdrop of the demonetisation initiative, which was introduced to crack down on black money, in addition to other objectives.

The Central Board of Direct Taxes (CBDT) has issued a circular comprising 12 FAQs relating to PMGKY. Investments in any asset like jewellery, stock or immovable property, and deposits in a foreign bank account are not eligible under the scheme.

CBDT also clarifies that deposits made in bank accounts prior to the financial year 2016-17 can also be declared under the scheme, besides all deposits made in the current financial year.

Unaccounted income (black money) deposited in accounts with a bank or post office — like savings account, current account, recurring deposit account, fixed deposits, senior citizen saving scheme, monthly income scheme, Jan-Dhan Yojana account — can be declared under PMGKY.

"Under the earlier Income Declaration Scheme, 2016, which closed on September 30, taxpayers who had been subjected to a search or survey were not eligible to declare their unaccounted money. Under PMGKY there is no such restriction. An additional plus point, clarified by the CBDT as regards PMGKY is that the taxpayer from whom cash has been seized during a search operation can request that the sum seized be adjusted for payment of tax, surcharge and penalty payable under the scheme," explains Gautam Nayak, tax partner, CNK & Associates.

CBDT has also clarified that deposits made in a taxpayer's account by an interbank transfer (ie: transfer from one account to another) can also be declared under PMGKY. Nayak explains: "Under the Income Tax (I-T) Act, if the genuineness of a loan that has been repaid cannot be proved then it can attract a tax of 83.25%. Thus, even repayment of loan received by way of a cheque or direct transfer in a bank account, can be declared under PMGKY against a tax of almost 50% and parking 25% of the unaccounted money in a non-interest bearing deposit for four years. This sum needs to be deposited first, before applying for disclosure under PMGKY. It may be beneficial for many taxpayers who wish to clean their books to take advantage of PMGKY."

This scheme, which commenced on December 17, 2016 is open until March 31, 2017. It requires a payment of tax at 30% of the undisclosed amount, surcharge at 33% of such tax and penalty at 10%, aggregating to 49.9%. In addition, it also requires deposit of 25% of the unaccounted money in an interest free deposit account with a four year lock in.

If undisclosed cash is not declared under PMGKY but is declared in the I-T return, then the effective tax rate for the taxpayer, will be 77.25% on such income. If no disclosure is made in the I-T return there will be a further penalty of 10% of the tax hiking the effective tax rate to 83.25%. Further if income is not admitted and taxes are not paid, the penalty will be 60% of income which can bring the effective tax rate to 138%.

As of date, the total amount of unaccounted money, declared under the scheme is unknown. Estimates are that about Rs 14 lakh crore of demonetised currency has been deposited with banks, but the same is being subject to a recount by the RBI. Government sources refused to speculate on what percentage of such deposits could comprise unaccounted money.

[The Times of India]