2 TAXATION & INVESTMENT REGIME FOR PRADHAN MANTRI GARIB KALYAN YOJANA, 2016 (PMGKY)

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1 CONTENTS u Chapter-heads I-5 u Taxation of Deposit of Demonetized Rs. 500/- & Rs. 1000/- Notes I-25 u Tax Tables I-33 1 BACKDROP 1.1 Demonetisation of old Rs. 500/Rs notes with effect from What is demonetization? What were the objectives of demonetization? What could one do with old demonetized Rs. 500/Rs notes? Is demonetization unconstitutional? Whether there is any special Schemes for those who deposit undisclosed income in the form of old Rs. 500/ Rs notes in bank account during the demonetization period? 4 2 TAXATION & INVESTMENT REGIME FOR PRADHAN MANTRI GARIB KALYAN YOJANA, 2016 (PMGKY) 2.1 Introduction Enforcement of PMGKY Scheme of PMGKY 10 I-9

2 CONTENTS I-10 3 WHO CAN MAKE A DECLARATION UNDER THE TAXATION & INVESTMENT REGIME FOR PRADHAN MANTRI GARIB KALYAN YOJANA, 2016 (PMGKY) 3.1 Who can make a declaration of undisclosed income under Taxation & Investment Regime for Pradhan Mantri Garib Kalyan Yojana, 2016 (PMGKY) Can a declaration be filed by a non-resident? Whether Minor can declare his undisclosed income under the Scheme or is it to be declared by his parent in whose hands it is taxable? Whether a trustee can make a declaration on behalf of a beneficiary of a trust of which he is a trustee and whether the beneficiary can also make a separate declaration in respect of other income? Can a declaration be filed on behalf of an entity not in existence? Can a declaration be filed by a person who has not submitted a return of income at any time in the past? If a firm has undisclosed income, can the partners file declaration in respect of the same? Where a partner of partnership firm files a declaration of undisclosed income of the firm, then whether immunity would be available to partners of the firm? Where a company has undisclosed income, can it file a declaration under the Scheme? If yes, then whether immunity would be granted to Directors of the company? A public servant or a Government servant has inherited certain properties from his father/mother and has found that they were not disclosed by his deceased parents. He now wants to make a declaration on behalf of his deceased parents. Can he make a declaration in his representative capacity? 17

3 I-11 CONTENTS 4 WHO CANNOT MAKE A DECLARATION UNDER PMGKY 4.1 Who cannot take the benefit of the Scheme? Persons detainable under COFEPOSA Persons notified in respect of Securities Scam of Persons liable to be prosecuted under the Prevention of Corruption Act,1988, Chapter IX or Chapter XVII of IPC, UAPA etc Can a person liable to prosecution for any offence under any of the following Acts make a declaration? Whether a person against whom only First Information Report was lodged, but charge sheet was not filed, was barred from taking benefit of scheme in view of the provisions of section 199-O(b) of the Finance Act, 2016? 24 5 WHICH INCOME CAN BE DECLARED UNDER PMGKY? 5.1 Which income can be declared under the Scheme? Whether undisclosed income in the form of jewellery, diamonds, bullion be declared in the Scheme? I have sold property in posh Delhi locality and received Rs. 1,00,00,000 (black) and Rs. 35 lakhs by DD. Can I declare this Rs. 1,00,00,000 received in black in the scheme? Whether deposits in PPF Account are covered? Whether amounts invested in National Savings Certificates are covered? Whether deposits in Recurring Deposits with banks/post offices are covered? Whether deposits with NBFCs are covered? Whether deposits with co-operative societies are covered? Whether deposits in Post Office Monthly Income Scheme can be declared? 29

4 CONTENTS I What are the advantages of the Scheme as against declaring the past undisclosed income as current income in the return of income to be filed for assessment year ? In a case where the return of income has not been filed for an assessment year but the time limit for filing the same has not expired under section 139 of the Incometax Act, whether the declaration under the Scheme can be filed for such assessment year? What is undisclosed income for the purposes of declaration under the Scheme? Whether tax-free incomes under section 10 of the Income-tax Act are undisclosed income if not shown in return filed or if ITR is not filed? Are such incomes to be declared under the Scheme? 31A 5.14 A person has filed his returns of income regularly but has not included his agricultural income for rate purposes. He now wishes to correct the mistake by making a declaration. Can he file a declaration and pay the differential tax? 31A 5.15 Whether credit for tax deducted, if any, in respect of income declared shall be allowed against the 49.90% payable under the Scheme? 31A 5.16 Are there any undisclosed income which cannot be declared under the Scheme? 31B 5.17 Can a person declare under the Scheme his undisclosed income which has been acquired from money earned through corruption? 31B 6 FOR WHICH ASSESSMENT YEARS CAN A DECLARATION BE MADE (PMGKY) 6.1 For which assessment years can a declaration be made? Can an assessee make a declaration where scrutiny assessment is pending and the Assessing Officer has detected undisclosed income and is proposing heavy additions? 32

5 I-13 CONTENTS 7 WHAT IS THE EFFECT OF NOTICE U/S 142/143(2)/148/153A/153C ON ELIGIBILITY TO DECLARE (PMGKY)? 7.1 Is a person eligible to declare if notice u/s 142 or 143(2) or 148 or 153A or 153C is served on him? If an assessee has filed a return and has been issued notice under section 142(1) requiring him to produce books of account and other details before the commencement of the Scheme, can he make a disclosure? 34 8 EFFECT OF SEARCH/REQUISITION/SURVEY U/S 132/132A/133 (PMGKY) 8.1 What are the effects of search? Whether search/survey operations are to be suspended during the Scheme Period? Can it be contended that a search during the period that the Scheme is open is arbitrary exercise of power to deprive the searched person the benefit of the Scheme? Can a person file a declaration if a survey has been conducted on him under section 133A of the Act? 37 9 WHAT IS THE QUANTUM OF TAX, INTEREST, PENALTY & SURCHARGE THAT HAS TO BE PAID ON UNDISCLOSED INCOME DECLARED (PMGKY)? 9.1 What is the quantum of tax to be paid in respect of the undisclosed income declared under the Scheme? What is the time schedule for payment of taxes and deposits Manner of declaration Declarant be liable to pay any interest under the provisions of section 234A or 234B or 234C of the Income-tax

6 CONTENTS I-14 Act, 1961 in respect of the tax on undisclosed income? Whether any set off of TDS is envisaged under the Scheme? Whether tax, penalty and surcharge paid under the scheme are refundable Whether the Income-tax Department needs to refund amount paid by declarant in respect of declaration which is non est on account of declarant not making payment required under the Scheme within stipulated time? Whether excess payment made by the declarant is refundable? Whether amount paid under Scheme is refundable if declaration which is void on account of misrepresentation or suppression of facts by the declarant? Is the income declared under PMGKY required to be rounded off under section 288A of the Act? Is the tax payable under PMGKY required to be rounded off under section 288B of the Act? Are all companies, including foreign companies, liable to pay tax, surcharge and penalty totalling to 49.9% of undisclosed income? Are all assessees, including non-residents, liable to pay tax, surcharge and penalty totalling to 49.9% of undisclosed income? What is the rate of tax on undisclosed long-term capital gains declared in Form 1? WHAT IS THE PROCEDURE FOR MAKING DECLARATION AND PAY- MENT OF TAX, SURCHARGE & PENALTY UNDER THE SCHEME (PMGKY) 10.1 When to make the declaration? Can the Commissioner condone a delay in filing the declaration and accept it? Who is the Authority with whom declaration is to be filed? 46

7 I-15 CONTENTS 10.4 If a declaration is forwarded by post on or before the notified date and if the Commissioner receives it after the notified date, is the declaration filed in time? Who are the persons who are authorized to sign the declaration? Whether multiple declarations by a person are allowed? Whether an individual can file separate declarations in different capacities? If a company acts as a statutory agent of its employees for the purposes of filing their declarations, does it have to file only one declaration covering all the employees? What is the deadline for payment of tax, surcharge and penalty and for making the deposit? Whether proof of payment of tax, surcharge and penalty and proof of deposit in bonds to be filed with declaration? What are the consequences of non-payment of tax, surcharge and penalty on undisclosed income declared? If only part payment of the tax, surcharge and penalty on declared undisclosed income is made before the notified date, whether the entire declaration fails? Whether revision or correction of declaration is allowed? If any arithmetical mistake or calculation error is noticed in a declaration, can the declarant rectify the declaration by revising it? What are the consequences of declaration by misrepresentation of facts? Check list for filing declaration under PMGKY IMMUNITIES AVAILABLE TO THE DECLARANT (PMGKY) 11.1 What immunities are available to the declarant who makes a valid declaration under the Scheme? The declaration made in respect of cash or deposits under the Scheme would result in increase in capital in the Balance Sheet in extraordinary manner. Whether

8 CONTENTS I-16 such cases of the declarants would be selected for scruunder the CASS for this reason? Whether the information of cash deposits made in bank as a consequent to declaration made under the Scheme shall be picked up by FIU or reported to the income-tax department? Is any immunity available to any person other than the declarant? What are the laws in respect of which immunity from penalty and prosecution are available to a declarant? Is immunity available to a declarant from penalty and prosecution under sales tax Excise and Stamp Duty Laws? What immunity is available to the declarant in relation to the declared income, penalties and prosecution? What are the pre-conditions for exclusion of declared undisclosed income from the total income? Whether immunity from interest under sections 234A to 234C of the Income-tax Act is available to the declarant? Whether penalties leviable under Income-tax Act can be levied? In case a trust or institution registered under section 12A of the Income-tax Act files declaration under the Scheme, whether the registration under section 12A shall be cancelled on the basis of such declaration? Can any Court or any other authority require to produce declaration DISCLOSURE OF INCOME BY DIFFERENT ASSESSABLE ENTITIES (PMGKY) 12.1 Can undisclosed income be declared by a minor for assessment year up to in his own hands? Whether the undisclosed income can be declared by the minor after the assessment year or is it to be declared by his parents in whose hands it is taxable? 58

9 I-17 CONTENTS 12.3 Whether the Department will ask any question in relation to the capacity to earn, source of income or nature of earning in the case of income voluntarily disclosed by minors? Can a declaration be filed by a minor, who does not have a nucleus fund of his own? If yes, whether any enquiries will be made as to the real person whose income has been declared by the minor? If declaration in respect of a minor s income is made by the parent, would it be considered as sufficient explanation where an issue arises in case of minor or the major (when the minor achieves majority) as to source of investments or assets? If a member of an HUF declares income under the PMGKY, whether his HUF can claim immunity or benefits of the declaration in its assessment? Whether the Department will ask any question in relation to the capacity to earn, source of income or nature of earning in the case of income voluntarily disclosed by HUFs? Can a declaration be filed by an HUF which does not have a nucleus fund of its own? If yes, whether any enquiries will be made as to the real person whose income has been declared by the HUF? Whether a person who makes a declaration as karta of an HUF can be questioned subsequently in respect of income accruing on the disclosed income with regard to the correctness of the status? Whether the Department will ask any question in relation to the capacity to earn, source of income or nature of earning in the case of income voluntarily disclosed by ladies? Can a declaration be filed by ladies who do not have a nucleus fund of their own? If yes, whether any enquiries will be made as to the real person whose income has been declared by the lady? Can partner file a declaration in respect of undisclosed income or assets representing undisclosed income of firm/llp? 62

10 CONTENTS I In case of a firm (for assessment year onwards), if it is proposed to make a declaration, will it be required to recompute the interest and remuneration payable to partners? In respect of a declaration by a firm, is the immunity against prosecution available to the partners of the firm? In respect of declaration by a company, is the immunity available to directors of the company? EFFECT OF DECLARATION ON COMPLETED ASSESSMENTS (PMGKY) 13.1 Can a declaration be made of undisclosed income which has been assessed to tax and case is pending before an Appellate Authority? Can declaration be made of other undisclosed income for assessment year for which appeal is pending? Can a declarant ask for reopening any assessment or reassessment made under the Act or the Wealth-tax Act in respect of the Scheme? Is the embargo under section 199J of the Finance Act, 2016 on the declarant or on the department also? If a person declares very large cash/deposit for a particular year but not for preceding or succeeding years, can the completed assessments be reopened? If an assessment is made and certain additions are contested in appeal, can a declaration be made in respect of such income and relief be claimed in appellate proceedings? Whether the amount declared under the Scheme for an earlier assessment year can be taken into account to explain the transaction(s) in the assessment proceedings for subsequent assessment year(s)? When the disclosed assets are brought to the notice of the Assessing Officer in the regular assessment proceed-

11 I-19 CONTENTS ings, has he any right to question the source or the manner in which the income was earned? If a person makes a declaration, will the fact of his having made the declaration go against him in his normal assessment proceedings? In other words, can the AO validly contend that the past practice is continuing in future? If any proceeding is pending before the Settlement Commission, can a person be considered eligible for the Scheme? CONSEQUENCES OF NON-DECLARATION UNDER PMGKY 14.1 What is the use of declaring income under the Scheme and paying 49.9 per cent and blocking of 25% in a bond for 4 years without interest? Why not declare undisclosed income as income of Assessment Year and pay 30 per cent and be done with it? How will the Department know to which year income pertains? If those having undisclosed income do not declare the same under the scheme and the undisclosed income is detected after the closure of the scheme, what will be the consequences? VOLUNTARY DISCLOSURE OF UNDISCLOSED INCOME IN INCOME-TAX RETURN [AN ON TAP VOLUNTARY DISCLOSURE SCHEME] 15.1 Existing provisions of section 115BBE Proposed New provision of section 115BBE - An On Tap Voluntary Disclosure Scheme for undisclosed income Is the source of income, need to be disclosed? How to avail the new Proposed On-Tap Voluntary Disclosure Scheme? Whether TDS credit in Form 26AS will be adjusted towards the 77.25%? 78

12 CONTENTS I Whether profits of illegal activity or illegal trade or corruption proceeds or narcotics drug trade or benami can be disclosed? What if there is a reassessment notice or notice under section 142 when I am contemplating a voluntary disclosure? What if there is a raid or survey the very next day after I pay 77.25% on the amount I propose to disclose in current ITR? If there is any difference in amount of undisclosed income determined by AO and amount disclosed by me, can penalty be invoked? If I disclose my corruption proceeds in wife s ITR, what will be the implications? If I disclose undisclosed income in the form of jewellery, whether I would be liable to wealth tax of past years? Will source be asked for amounts disclosed? Which is more beneficial? PMGKY? Or this Scheme? What happens to section 270A? Is it reduced to a dead letter? Whether year in which income arose needs to be proven? Whether any interest under section 234A or 234B or section 234C shall be levied? SEARCH AND SEIZURE 16.1 Search and seizure cases Penalty in case of detection of undisclosed amounts in search Whether even during search PMGKY can be availed? 82

13 I-21 CONTENTS 17 REPORTING BY BANKS OF CASH DEPOSITS TO INCOME-TAX DEPARTMENT 17.1 Requirement of PAN for making cash deposits Requirement for bank/post office to report cash deposit to income-tax department Whether cash deposits during demonetization period have been given blanket tax-free status upto limit of Rs. 2,50,000? Will AO ignore cash deposits upto Rs. 2,50,000 during demonetization period in scrutiny assessment? If I have 4 bank accounts and I deposit cash Rs. 2.5 lakhs in each account during demonetization period, will my Rs. 10 lakhs be tax-free/ignored during scrutiny? I have been filing ITRs for last 7 years I have filed ITRs for AY showing total income of Rs. 7,00,000 and for AY showing total income of Rs. 8,00,000. If I deposit Rs. 10,00,000 cash in old notes during demonetization period, would I get any notice from Income-tax Department based on bank reports? Whether old notes may be deposited in bank in FD account? WILL ANY HUGE CASH DEPOSIT DURING THE DEMONETIZATION PERIOD BE AUTOMATICALLY DEEMED AS UNDISCLOSED INCOME EVEN IF DECLARED UNDER INCOME DECLARATION SCHEME, 2016? 18.1 Undisclosed income in the form of cash balance declared under Income Declaration Scheme, Will it make any difference if break-up of denominations of cash in hand or serial numbers of cash in hand is not mentioned in IDS declaration and only amount of cash in hand is declared? Would it be presumed that the cash in hand declared did not consist of Rs or Rs. 500 notes? 91

14 CONTENTS I Suppose a person declared Rs. 50 lakhs cash in hand in IDS, Then he deposits Rs. 45,00,000 in Rs notes in bank account during demonetization period. Can he claim that declared balance in IDS is the source? Suppose a person declared Rs. 50 lakhs cash in hand in IDS, Then he deposits Rs. 45,00,000 in new Rs. 500 notes in bank account during demonetization period. Can he claim that declared balance in IDS is the source? Suppose a person declared immovable property at FMV of Rs. 70 lakhs in IDS, He sold the property for Rs. 80 lakhs on and amount mentioned in sale deed is Rs.70 lakhs and received Rs.10 lakhs in black. He deposits this Rs.10 lakhs in old notes on in his bank account. Can he explain it as sales proceeds of property. Whether it will be treated as undisclosed income? Suppose a person declared immovable property at FMV of Rs.70 lakhs in IDS, He sold the property for Rs.70 lakhs on and amount mentioned in sale deed is Rs. 70 lakhs. He received Rs.10 lakhs in cash against sale of various items of furniture and fittings and fixtures including ACs and this is evidenced by a separate agreement signed by him and buyer. He deposits this Rs. 10 lakhs in old notes on in his bank account. Whether it will be treated as undisclosed income? WILL ANY HUGE CASH DEPOSIT DURING THE DEMONETIZATION PERIOD BE AUTOMATICALLY DEEMED AS UNDISCLOSED INCOME IF NOT DECLARED UNDER IDS, 2016? 19.1 What is undisclosed income? When will huge cash deposits be regarded as undisclosed income and taxed and penalised? What is meant by cash deposits in bank account not matching with depositor s ITRs? What if the amount of mismatch has been declared by the depositor under IDS? 95

15 I-23 CONTENTS 19.4 What if mismatch has not been declared under IDS? What if entire huge cash deposit (disproportionately higher than income declared in the past) is disclosed in current year s ITR (ITR of FY ) as current year s income? Can seller of property declare black portion of sales proceeds after depositing it in bank account Whether cash deposits of old demonetized Rs. 500/ Rs notes can be explained away as gifts received? Can I deposit someone else s old notes in my bank account, enjoy interest and return the amount in cash after say 3 months? What if I come across a bag full of demonetized notes of Rs. 500/Rs abandoned on road and I deposit it in my bank account? Whether huge cash deposits may be explained away as sale of jewellery? PROHIBITION OF BENAMI PROPERTY TRANSACTIONS ACT, Introduction Benami properties - IDS vis-a-vis PMGKY Benami Transaction Benami Property Is it necessary that the benami property has to be an immovable property? Benamidar Beneficial Owner Legal consequences of Benami Transactions Whether benami properties can be declared under section 115BBE of the Income-tax Act 108

16 CONTENTS I-24 APPENDICES APPENDIX 1 : Relevant provisions of Income-tax Act, APPENDIX 2 : Relevant provisions of Finance Act, APPENDIX 3 : Taxation Laws (Second Amendment) Bill, APPENDIX 4 : Relevant provisions of Income-tax Rules 136 APPENDIX 5 : Notifications Governing Demonetization 145

VOLUNTARY DISCLOSURE SCHEME [CA P N SHAH]

VOLUNTARY DISCLOSURE SCHEME [CA P N SHAH] 1 BACK GROUND In his Budget Speech on 29 th February, 2016, the Finance Minister has listed 9 objectives for his tax proposals. One of the objectives relates to