Features of the new domestic black money scheme: How the budget reloads it

FM sets a smart and tempting tax rate of 45% to compell the ex-tax evaders to declare thier black mone and come clean.

One of the big and surprising news of this budget is that the government will launch a (amnesty) scheme for black money holders to convert their black money into white money by paying a tax rate of 45% including a marginal 7.5% penalty. The difference in tax difference for an evader is he shuold pay 7.5% penalty and a 7.5% surcharge in addition to the tax rate of 30%.

A black money hodler can take away 65% of his black income  pay giving 45% of it to the government – freebees are no prosecution and no enquiries as well.

The programme exactly looks the similar to the Undisclosed Foreign Income and Assets Act of 2015. Main difference is that the tax rate on domestic black money is 45%, whereas that on foreign black money was 60%.

As per the new domestic black money scheme, there is no prosecution. An most importantly, only limited provisions of the Binami Transaction Prohibition Act 1988 will be applied.

Trouble for the new scheme

But there is a clear trouble for the new programme. In 1998, the Attorney General made a promise to the Supreme Court (after the VDIS 1997, which was an amnesty scheme) that it will not introduce an amnesty scheme in future. The court has observed that such a scheme adversely affect the morale of the honest tax payers.

But the new law may go through as a 7.5% penalty doesn’t make look like an amnesty scheme as it penalizes the dishonest.

Following are the main features of the domestic black money amnesty scheme

  1. The tax rate will be 45%. The tax rate includes 30% tax plus 7.5% surcharge ( Krishi Kalayan Surcharge) plus a penalty of 7.5%. The main part is the penalty of 7.5%.
  2. There is a a Limited Period Compliance Window of four months From June 2016 to September 2016 to disclose black money.
  3. Disclosure about black money should be made in this four month. In the next two months, the tax should be paid.
  4. There is no scrutiny under the income tax Act, Wealth Tax Act
  5. There is no prosecution and no enquiries as well about the black money revealed.

The 7.5% surcharge will be used for financing Krishi Kalayan Yojana and this gives a social purpose colour to the black money scheme.

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