Presented By: CA. Ashish Kapoor Presentation on Demonetization and How it impacts you? [email protected]
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Transcript
Presented By:CA. Ashish Kapoor
Presentation on
Demonetization and
How it impacts you?
Contents
1. Tax Impact on Demonetization
2. Demonetization vis a vis Benami Transaction and its impact
3. Pradhan Mantri Garib Kalyan Yojana, 2016
Demonetization in India – PurposeWhat is Demonetization ?
W.e.f. 8th of November, 2016, RBI has withdrawn the old `.500/- and `.1,000/- notes as a legal tender and has asked every person to deposit such currency in it’s Bank Account before 31/12/2016.
To tackle black money in the economy.
To eliminate fake currency and dodgy funds which have been used by terror groups to fund terrorism in India.
To lower the cash transaction with a hope to bring all transaction from shadow economy to accounted economy.
Reasons for Demonetization
Who needs to worry?Honest Taxpayers
If you have `. 500 and `. 1000 notes lying with you, there is no need to panic if you can explain the source of the cash and prove its legitimacy.
OR
The surprise move by government is a disaster for people who have accumulated lakhs and crores of unaccounted cash.
Dishonest Assessees
Deposit Enquiry by
the Departme
nt
Explain the source
Tax Impact
Flow Chart of Impact of Demonitisation
Deposition of Cash in Bank
As per Rule 114B (mandatory quoting of PAN) every person is required to quote his PAN at the time of depositing cash in bank if:-
Cash deposits made in the bank/ post office exceeding `. 50,000 during any one day.
Cash deposits exceeding `. 2,50,000 during the period 09/11/ 2016 to 30/11/2016 (inserted from 15-11-2016)
Penalty for non - quoting/ knowingly quoting a false PAN – `. 10,000
Enquiry by DepartmentAll the banks and post offices shall furnish to Income Tax Department a
statement whereby they shall report the following transactions :- Cash deposits aggregating to `. 10 lakh or more in a financial year, in
one or more accounts (other than a current account and time deposit). To be filled by 31/05/2017.
Cash deposits in bank account or a post office account during the period 09/11/2016 to 30/12/ 2016 :- aggregating to `. 12,50,000 or more in one or more current account of
a person or aggregating to `. 2,50,000 or more in one or more accounts (other
than current account) of a person. To be filed by 31/01/2017.
Details of Cash Deposition can be asked directly from the assessee as per section 133(6)
Explanation - Sources of Cash DepositsPersonal Saving – cash which is set aside for non-immediate use or for unforeseen emergencies.
Cash in Hand of Business or Profession or Charitable Entities
Stri Dhan – cash saved by a woman during her lifetime, from money received from family & friend.
Minor Child Fund – Received from family or friend on various occasion.
HUF Fund – Cash Income of HUF or Fund received in marriage.
Loan Fund – From Relative , Friends or for Business Purpose
Explanation - Sources of Cash Deposits – Risk Area
Assessee should be cautious while making claims of sources as loans or advances towards property transactions as
Section 269SS (Advancing loan)Section 269T (Repayment of loan)
prohibits cash transactions in excess of `. 20,000 for accepting or advancing loans and deposits or in relation to transfer of an immovable property, whether or not the transfer takes place.
bullion traders who make cash sales above specified limits (bullion exceeding `. 2,00,000 and jewellery exceeding `. 5,00,000) and
by sellers who receive sale consideration in cash exceeding `. 2,00,000 for sale of any goods.
a person involved in a Benami Trasaction - A transaction or an arrangement in respect of a property carried out or made in a fictitious name
Provisions with regard to collection of tax at source under section 206C and quoting of PAN of the buyers have to be borne in mind by :-
Explanation - Sources of Cash Deposits – Risk Area
Sources of Cash Deposits – Tax Impact
Unexplained cash credit (Sec - 68), orUnexplained investment (Section 69), or
Unexplained money, bullion, jewellery etc (Section 69A), or Investment not disclosed in the books of account (Section 69B), orUnexplained expenditure (Section 69C), or
Amount borrowed or repaid in Hundi (Section 69D)
in the books of the assessee, for any previous year and the assessee offers no explanation about the nature and source thereof, or the explanation is not satisfactory, the sum may be charged to income tax of the assessee for that previous year
If there are -
Tax Impact of Unexplained Cash Deposit115 BBE Existing Provision
If there is any income in the form of any of the Sections (68,69,69A,69B,69C & 69D), the income tax payable shall be the aggregate of
Tax @ 30 % which is the maximum marginal rate
No deduction of expenditure or allowance is available
No set off is available
Section 270A is applicable when there is difference between :-
Income as per order passed u/s 143(3) and Income determined u/s 143(1)(a)
Penalty is provided at the rate of :-a. 50% of tax if there is under reporting of income b. 200% of tax if there is misreporting of income
Prosecution u/s 276CThe section has been amended to provide for rigorous imprisonment (between six months to seven years) where the amount sought to be evaded, or tax on under-reported income exceeds `. 25,00,000
Tax Impact of Unexplained Cash Deposit
Proposed Tax Impact of unexplained Cash Deposit
1. Government has proposed amendment in Income Tax Act, 1961, through Taxation Laws (Second Amendment) Act, 2016.
2. The Bill has proposed to amend section 115BBE to increase the rate of tax in relation to unexplained money, etc. from the existing 30% to 60%.
3. An additional surcharge of 25% of this tax is also levied with respect to payment of advance tax.
4. In case the undisclosed income is not VOLUNTARILY disclosed by the assessee in its tax return and the tax thereon has not been paid, then a penalty of 10% of the tax payable will be levied. (New Section 271AAC). Thus may lead to impact of tax & penalty ranging from 77.25% to 87.25 %
Proposed Tax Impact of unexplained Cash Deposit
5. In case of search cases, the penalty under section 271AAB of the Act has also been proposed to be increased to 30% (earlier 10%) where the assessee admits the undisclosed income, declares such income in tax return and pays the tax thereon. In other cases, the penalty stands increased to 60%. Thus may lead to impact of tax & penalty ranging from 107.25 % to 137.25%
Prohibition of Benami Property Transactions Act, 1988 – Key
pointsThis Act was introduced on 5th September, 1988 (having only 9 Sections)
The said Act has been DRASTICALLY amended with effect from 1st November, 2016. (Now having 72 Section)Demonetisation was declared 7 days after the said amended act was notified!!!The said act shall be monitored by Ministry of Finance GOI.The “Initiating officer” & “Approving Authority” shall be officers of Income tax Department.“Adjudicating Authority” & “Appellate Tribunal” shall be off the Prevention of Money-Laundering Act, 2002.
What is a “Benami Property” ? Can Cash or Stock be treated as a
Benami Property ? “Benami Property” means any PROPERTY which is the subject
matter of a “BENAMI TRANSACTION” and also includes the proceeds from such property. (Section 2(8)).
“Property” means an asset of any kind, whether movable or immovable (Thus, Cash is a Property and Stock in Trade is also a Property as per this Act), tangible or intangible, corporeal or incorporeal and includes any right or interest or legal documents or instruments evidencing title to or interest in the property and where the property is capable of conversion into some other form, then the property in the converted form and also includes the proceeds from the property. (Section 2(26)).
What is a “ Benami Transaction ”?Benami Transaction - Section 2(9)
A. A transaction or an arrangement in respect of a property carried out or made in a fictitious name;
For Eg: Sale of stock in trade is made to a fictitious person.OR
B. A transaction or an arrangement in respect of a property where the owner of the property is not aware of, or, denies knowledge of, such ownership;
For Eg: A sum of ₹ 50,000 is deposited in the Bank Account of Mr A. But Mr A is unware about such deposition or he denies ownership of such cash so deposited into his account.
What is a “ Benami Transaction ” ?C. A transaction or an arrangement in respect of a property, where the
person providing the cash is not traceable or is fictitious.
For Eg: Where a sum of ₹ 50,000 is deposited into Mr A’s account. But the depositor is either untraceable or fictitious.
ORD. Where a property is transferred to, or is held by, a person, and such
property has been provided, or paid by, another person, and the property is held for the immediate or future benefit, direct or indirect, of the person who has provided the such property.
Exceptions to the Benami TransactionsFollowing transactions shall not be treated as “Benami”, any property held by:-
The karta /members of the HUF for his benefit or for the benefit of members and such amount is paid out of the known sources of the HUF.
The person standing in ‘fiduciary capacity’ for the benefit of those for whom he stands in this capacity and includes a trustee, executor, partner, director etc.
A person being an individual in the name of his spouse or in the name of any child of such individual and the consideration for such property has been provided or paid out of the known sources of the individual
Any property held by, any person in the name of his brother or sister or lineal ascendant or descendant, where the names of brother or sister or lineal ascendant or descendent and the individual appear as joint-owners in any document, and the consideration for such property has been provided or paid out of the known sources of the individual.
Exceptions to the Benami Transactions
Any transaction involving the allowing of possession of any property to be taken or retained in part performance of a contract referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882), if, under any law for the time being in force,consideration for such property has been provided by the person to
whom possession of property has been allowed but the person who has granted possession thereof continues to hold ownership of such property;
Stamp duty on such transaction or arrangement has been paid; andthe contract has been registered;
Impact of Benami TransactionAny person found guilty of offence under this act shall bear following consequences:
• 100% of the Benami property will be confiscated (Sec - 5)• Rigorous imprisonment for a term ranging from 1 year to 7 years • Levy of fine amounting to at most 25% of fair market value of the benami
property (Sec - 53)
Any person who gives false information:• Shall be punishable with rigorous imprisonment for a term ranging from 6
months to 5 years• Levy of fine amounting to at most 10% of fair market value of the benami
property. No prosecution shall be instituted without the previous sanction of the Board.
Impact of Benami Transaction Prohibition on re-transfer of property by benamidar.
No person, being a benamidar shall re-transfer the benami property held by him to the beneficial owner or any other person acting on his behalf.
Where any property is re-transferred in contravention of the provisions of sub-section (1), the transaction of such property shall be deemed to be null and void.
The above provision shall not apply to a transfer made in accordance with decleartion made under IDS (Income Disclousre Scheme) 2016.
Prohibition of the right to recover property held benami. No suit, claim or action to enforce any right in respect of any property held
benami against the benamidar shall lie by or on behalf of the Beneficial owner.
Taxation & Investment Regime For
Pradhan Mantri Garib Kalyan Yojana 2016
Yet another opportunity to all the Black Money holders to come out clean by declaring their undisclosed income and paying heavy taxes and penalty under the scheme
What is Pradhan Mantri Garib Kalyan Yojana, 2016?
Any person may make a declaration in respect of any income (in the form of cash/deposit in any bank/post office account) chargeable to tax under the Income Tax Act for the assessment year 2017-18 (or any earlier assessment year).
No deduction in respect of any expenditure or allowance or setoff of any loss shall be allowed against the income so declared.
Step wise Process for Making Declaration
Payment of Tax, Surcharge and
Penalty
Deposition of 25 % of the disclosed
income in the PM Garib Kalyan
Deposit Scheme, 2016.
File The Declaration
Amount payable by declarant
Tax @30% of income declared (Sec - 199D)
Surcharge @33% of Tax (Pradhan Mantri Garib Kalyan Cess)
Penalty @10% of income declared (Sec - 199E)
Pradhan Mantri Garib Kalyan Deposit Scheme, 2016
1. The person making above declaration shall deposit at least 25 % of undisclosed income in the Pradhan Mantri Garib Kalyan Deposit Scheme, 2016 (Sec - 199F).
2. The deposit shall bear no interest and the amount so deposited can be withdrawn only after 4 years from the date of deposit.
3. Further the depositor shall be required to fulfil such other conditions as may be specified in the said Deposit Scheme 2016.
The Insider ViewSo do you think the effective pay out by the declarant is
49.9% ?
NO
Its not just 49.9% tax of undisclosed income
• The notional loss he suffers due to the lock in period of 4 years due to deposit made under this
scheme; and The inflation rate
Makes the effective rate equal to about 57%.
An IllustrationUnder Pradhan Mantri Garib Kalyan Yojna 2016 Amount
Undisclosed Income 10,00,000
Tax on Undisclosed Income (u/s 199D) (@ 30%) 3,00,000
Surcharge (@ 33% of tax) 99,000
Penalty (@ 10% of income declared) 1,00,000
Total Tax on above (@ 49.9%) 4,99,000
Deposit in Deposit Scheme (@ 25%) 2,50,000Future Value of the Deposit account (Since, it is locked for 4 years & average inflation of 8 %)
1,79,100
Indirect Loss as on this day 70,900 or 7.1%Total loss( 49.9 % + 7.1 % ) 57 %
Declaration when voidWhere a declaration has been made by:-
Misrepresentation or suppression of facts or
Without payment of tax and surcharge as specified u/s 199D or
Without payment of Penalty as specified u/s 199E or Without depositing the amount in the Deposit Scheme as specified u/s
199F
such declaration shall be void and shall be deemed never to have been made under this Scheme. Importantly, any tax and surcharge paid under this scheme shall
not be refundable. (Sec-199K)
Advantages of the Scheme The undisclosed income will not be included in total income
of the declarant for any assessment year. Nothing contained in any declaration shall be admissible in
evidence against the declarant for the purpose of any proceeding under any Act (other than certain specified Acts as detailed in slide 18).
It would be the last chance to come clean for black money holders. Any detection of black money by AO thereafter (other than search cases) would attract 83.25% tax.
The declaration can be made for the current year as well as for any previous assessment years.
Disadvantages of the Scheme
No deduction in respect of any expenditure or allowance or set-off of any loss shall be allowed against the income in respect of which a declaration is made.[Sec - 199C (2)]
A declarant under this Scheme shall not be entitled, in respect of undisclosed income, to re-open any assessment or reassessment made under the Income-tax Act or the Wealth-tax Act, 1957.
Any amount paid as Tax, surcharge or penalty, under this scheme shall not be refundable.
Declaration can be made only for Cash deposition and not for any other assets.
Disadvantages of the SchemeImmunity under Benami Transaction Act or other such law is
not being provided.
No immunity against the tax and interest in case of other tax laws like service tax, sales tax, etc is available.
The provisions of Chapter XV of the Income Tax Act relating to liability in special cases and Section 119, Section 138 and Section 189 shall apply in relation to proceedings under this scheme.
On whom does the scheme not apply?
The deposit scheme shall not be available to persons involved in or indicted in the specified manner in any illegal activity as covered under the following Acts:-
The Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974;
Chapter IX or Chapter XVII of the Indian Penal Code;
The Narcotic Drugs and Psychotropic Substances Act, 1985;
The Unlawful Activities (Prevention) Act, 1967;
The Prevention of Corruption Act, 1988;
The Prohibition of Benami Property Transactions Act, 1988 and the Prevention of Money Laundering Act, 2002;
Any person notified under section 3 of the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992;
Any Queries??Thank You
• DISCLAIMER:-
This presentation has been prepared to provide a gist of the applicable law pertaining to Demonetization and relevant sections of Taxation Laws (Second Amendment) Bill, 2016 was introduced in Lok Sabha.
For detailed insight and for better understanding of the various provision of the said law, the said presentation should be read along with related provision of Income Tax Act, 1961 and Income Tax Rules,1962, Prohibition of Benami Property Transactions Act, 1988 (modified by Benami Transactions (prohibition) amendment Act, 2016 and the Finance Act, 2016.
We shall not be responsible for any decision taken on the basis of the said presentation, without obtaining our professional guidance or consultation on the matter for which reliance was made on this presentation.”
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