The tax law amendments to implement the latest voluntary income disclosure scheme has left tax practitioners puzzled about the effective rate of tax and penalty that will be imposed on those who fail to avail of what is being considered the last chance at amnesty for holders of black money.
Ambiguous language
While the government has said that the tax rate and penalty to be levied on undeclared cash and assets for which a source of income can’t be explained, would add up to 85 per cent, the language of the amendments to the income tax (I-T) law cleared by Lok Sabha on Tuesday seems to suggest that the actual amount payable could be a little lesser, tax experts said.
Section 115 BBE stipulates a 60 per cent tax rate plus 25 per cent of the tax to be levied as surcharge, which adds up to about 75 per cent. With the addition of 3 per cent of tax to be paid as cess, the tax liability comes to 77.25 per cent. However, the new section 271 AAC introduced in the I-T law that empowers assessing officers to levy an additional penalty at 10 per cent of tax payable in cases where a person can’t explain the source of income, is a source of confusion.
“The assessing officer may… direct that… the assessee shall pay by way of penalty, in addition to tax payable under section 115BBE, a sum computed at the rate of ten per cent of the tax payable under clause (i) of sub-section (1) of section 115BBE,” it states.
“The drafting of the new provisions has created ambiguity on how the 10 per cent penalty will be applied, ie, whether only on the base rate of tax (60 per cent), resulting in an effective rate of 83.25%, or on the total tax, including surcharge and cess, resulting in an effective rate of close to 85 per cent, which is what the Government has been talking of,” said Abhishek Goenka, partner (Tax & Regulatory Services) at PwC.
‘Not cohesive’
KPMG India partner Girish Vanvari, who heads the tax practice, said that the new sections in the tax law are not cohesive. “This has led to a doubt on the interpretation of the total tax payable. This may need to be amended, since the government’s intent is to levy an 85 per cent rate,” he said.
“The amnesty window to declare inexplicable income is a good option and since the government appears relentless in its drive against black money, so clients are being advised to assume the worst and consider that the rate payable if they don’t use the voluntary disclosure window will be 85 per cent,” Mr. Vanvari said.
Queries sent to the Central Board of Direct Taxes remained unanswered.
Penalty base
However, a senior official in the revenue department said that the changes were in line with the 85 per cent tax rate announced as a stick to drive out black money.
“In taxation, penalties are always considered payable on the total tax liability, so the 10 per cent penalty that an assessing officer can levy would be applicable on the 77.25 per cent of liability payable under section 115BBE, which includes surcharge at 25 per cent of tax and cess. This adds up to 84.95 per cent,” the official said.
