Demonetisation Tax Sword - Will the final weapon work ?

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In an ostensible attempt to curb the black money menace, the Modi Government, in a stunning  move on November 8, announced demonetisation of currency notes of Rs. 500 and Rs. 1000 denominations.As with most black swan events we are in unchartered territory; there have already been more twists and turns than an Alfred Hitchcock thriller! With millions of citizens depositing the now illegal tender notes to the tune of almost Rs. 9 lac crores in a mere 20 days, the Finance Ministry probably had no option but to step in.

So here we are - another IDS but with a different name - Pradhan Mantri Garib Kalpana Yojana, which gives another final chance to tax evaders but this time at a rate higher than the 45% IDS rate and also a 4 years lock in of 25% of the amount declared under the scheme. And for those who are willing to brazen it out, the tax department is armed with a strengthened/amended Sec. 115BBE. 

Did the Government have no choice but to go for ankther IDS? Will the fear of law force tax evaders to come clean this time? Will the amendments to Income tax Act be an adequate deterrent for black money holders or will it only results in unintended harassment of ordinary citizens ?

 
Rashmin C. Sanghvi
(Partner, Rashmin Sanghvi & Associates Chartered Accountants)

1. With demonetisation, some people would lose 100% of their black money holding in cash. They are given an opportunity to come forward, declare the black money & pay tax. At least a part will be retained. The cost is higher than the cost under Income Disclosure Scheme.

2.  There is a method in the series of actions against black money. Every step is harsher than the earlier step. Black Money Law, Income Disclosure Scheme, Demonetisation and then there will be enforcement of Benami Transactions (Prohibition) Act. One has to only guess what next after Benami.

3. Some people are still holding black money (cash or investment) in some tax haven or in a regular country abroad; – in any bank, financial institution or in any other form. Such people may understand the combined effects of the following:

     (i) Suspicious Transaction Reporting under PMLA; and

     (ii) Automatic Sharing of Information under Multilateral Agreement.

     Under both these legal systems, more than 90 countries around the world have signed agreements to cooperate. This list   includes almost all tax havens normally used by Indians.

     PMLA is already effective. Further massive...

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Ameet Patel
(Partner, Manohar Chowdhry & Associates)

8/11 is turning out to be far more tumultuous for Indians than 9/11.

8th November, 2016 will be a watershed day in the history of modern India. Most people would probably have not even heard of the term “demonetisation” prior to this date. Now, it has become a buzz word.  

In the wake of the demonetization of Rs. 500 and Rs. 1,000 denomination currency notes, the Modi Government has now proposed several far-reaching amendments to the Income-tax Act, 1961 by way of the Taxation Laws (Second Amendment) Bill, 2016 that has been presented before the Parliament on 28th November 2016.

In effect, the amendments proposed in the said Bill alter the existing Sections 115BBE and 271AAB apart from bringing in a new Section 271AAC. Much to the surprise of many, there are no amendments proposed to the penalty provisions contained in Section 270A.

In order to understand the rationale behind the amendments proposed in the Bill, it would be appropriate to read the Press Release issued by the Government. The relevant part of the same is reproduced below (emphasis supplied):

“Concerns have been raised that some of the existing provisions of the...

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Vardhaman Jain
(Chartered Accountant)

The BMT (TLSA Bill, 2016) is finally before us offering one more last version of a disclosure scheme albeit with higher rate of taxes.

The Bill has come in at a time when the experts in the country had pointed out that a 200% penalty cannot be levied in case a person decides to deposit undisclosed cash in his accounts and offer the same for tax in the return to be filed for AY 2017-18.

It may seem like a politically incorrect move in the face of the fact that the Hon. Prime Minister had himself said during the currency of IDS, 2016 that it was a last opportunity for tax evaders to fall in line and come clean. However, it is a pragmatic step to be seen in the light of the huge deposits of cash into bank accounts in a span of 20 days from the announcement of demonetization on 8th November, 2016.

The move also attempts to avoid all litigations that may have ensued on the genuineness of the cash deposits which deposits possibly would have never been offered to tax. In a way, it also ensures that a definitive amount comes...

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T.P. Ostwal
(Senior Partner, T P Ostwal & Associates)

“In my opinion, demonetisation is an excellent move to tackle number of issues India is facing and it has shown the results eg: terrorism have stopped on all the borders, naxalites are marginalized, unaccounted money which was not in circulation and was  kept in  warehouses or stored in unknown places got fresh air  has come back in  banking  system which will propel economy . Even  those who have banked the money through third parties has also helped the economy as it has distributed some part of their wealth amongst the poor and that money has been in use by those poor which has helped the economy even in the crisis period.

Secondly, there will be big boost to the service sector as now the new methods of payment and doing transactions has been widely accepted and the technology has penetrated in the rural area and everybody is compelled to use technological platforms. So, in a way, this step taken by Mr. Modi is in a right direction. In the future, most of the transactions will be through digital mode which will bring the unorganized sector into the main stream and therefore economy will benefit.direct and indirect tax collections will improve...

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Padamchand Khincha
(Partner, H C Khincha & Co Chartered Accountants)

It was past dusk on November 8, 2016 when the economy was struck with demonetization. In recent past, no government has had the guts and gumption to take such a bold step. The scheme gives a ‘third’ chance to hoarders and black marketeers to emerge clean. In the larger interest of the nation, all stakeholders should collectively strive towards the country reaping the benefit of such ‘step in right direction’. It has induced a feeling of participation in national movement against illegal practices. Any decision comes with responsibilities. Glitches in smooth execution can leave the entire scheme stumbling. The objective of Taxation Law (Second Amendment) Bill, 2016 is to curb black money. The tax proposals seek to instill fear in taxpayer’s mind. The accelerated tax rates are sought to serve as a deterrent. Historically, step up in tax rates have only instigated people to bypass the tax compliant path. This is compounded by retrospective effect. It envelops the nation at large with no threshold exemption as promised by the Finance ministry. The ground realities reveal that the scheme has resulted in sustained suffering for majority. These realities have to be appreciated and addressed. The Government should bandage the...

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G .C. Srivastava
(Former D.G. - International Tax, Indian IRS)

"While an amnesty/IDS scheme is generally not desirable, however considering the peculiar circumstances confronting the government and the enormity of the task if the tax department were to scrutinize millions of deposits, this probably was the only way out. While amendment to Sec. 115 BBE provides for a higher rate in case unexplained cash deposits are detected by the tax officer, the new IDS scheme is one last opportunity for the tax evaders to come clean and avail of the lower 50% rate. Post demonetization however, the higher rate of tax u/s 115 BBE/Sec. 271AAD will give rise to more intense litigations and will cast a higher burden of proof on the tax authorities."

 

R.N. Dash
(Former DG-International Tax, Indian IRS)

“I find that the most recent proposals to amend the Incometax Act provide again an window of opportunity to those confirmed tax dodgers and hoarders of proceeds of crime to enjoy  a good part of the tainted money by sharing a portion with the Government. Most such persons deserve the harshest possible tax treatment, confiscatory in nature and also jail. Many who have accumulated their pile through the means criminal could now get almost scot free. It's  like buying a pardon. However, the other part of the amendment dealing with persistently delinquent dodgers appear to be near rational is certainly welcome. Third, many people in the unorganised sector could possibly be  victimised by an aggressive tax administration unless safeguards are provided against indiscriminate tax audit”.

 

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