K.VAITHEESWARAN ADVOCATE & TAX CONSULTANT

‘VENKATAGIRI’

Flat No.8/3 & 8/4, Ground Floor,

No.8 (Old No.9), Sivaprakasam Street,

T. Nagar, Chennai - 600 017, India

Tel.: 044 + 2433 1029 / 4048

402, Front Wing,

House of Lords,

15/16, St. Marks Road,

Bengaluru – 560 001, India

Tel : 080 22244854/ 41120804

Mobile: 98400-96876

E-mail : vaithilegal@yahoo.co.in / vaithilegal@gmail.com

www.vaithilegal.com

On 12th January 1946, Rs. 500 was demonetized and people were given 10 days for exchange. After this period explanation was required as to why exchange was not done in the first 10 days.

The Scheme was a failure as out of the total issue of Rs. 143.97 crores of High Denomination Notes, Rs. 134.90 crores were exchanged. Thus only Rs. 9 crores were demonetized.

1946 exercise turned out to be only an exchange.

On 16th January 1978, Demonetization Ordinance was announced via AIR at 9 AM.

The Ordinance provided that banks and treasuries would be closed on 17th January 1978 for all business except preparation and presentation or receipt of returns.

Only 3 days time was given to exchange Rs. 1000, Rs. 5000 and Rs. 10000 notes.

Long queues formed in front of RBI and SBI to collect declaration forms.

Rs. 73 crores was the demonetized figure though Rs. 1067 crores were added through Rs. 100 notes and smaller denominations made up for another Rs. 650 crores.

Very few people were using Rs. 10000 notes.

In 2011, the Supreme Court in the case of Ram Jethmalani and Others Vs. UOI had directed appointing of an SIT for investigating matters pertaining to black money and money stashed abroad.

Application for review dismissed in 2011. No action was taken for 3 years The new Government in 2014 constituted a Special Investigation Team

(SIT) consisting of two retired judges for recommending steps to curb the menace of black money.

Black Money Act, 2015 was enacted to unearth undisclosed foreign income and assets.

One time compliance scheme for voluntary disclosure of undisclosed foreign assets.

DTAA between India and Mauritius / Cyprus renegotiated. Understanding with Switzerland for getting information on bank

accounts held by Indians

Income Declaration Scheme , 2016.

RURAL : 15.67 crore bank accounts URBAN : 9.84 crore bank accounts TOTAL : 25.51 crore bank accounts NO OF RUPAY CARDS : 19.44 crores AADHAAR SEEDED : 13.69 crores BALANCE IN ACCOUNTS : Rs. 45636.61 crores % OF ZERO-BALANCE-ACCOUNTS : 23.27% Recent press reports state that nearly 21,000 Crores

have been deposited in Jan Dhan.

“I propose a limited period compliance window for domestic taxpayers to declare undisclosed income or income represented in the form of any asset and clear up their past tax transgressions by paying tax at the rate of 30%; surcharge at 7.5% and penalty at 7.5% , which is the total of 45% of undisclosed income. Our Government is fully committed to remove black money from the economy. Having given one opportunity for evaded income to be declared once, we would then like to focus all our resources for bringing people with black money to books…..” - Hon’ble Finance Minister, Budget Speech 2016.

Mere pyaare Deshwasiyon… “Why don’t we, on our own, give the correct details of our income and

property to the government, so that we can rid ourselves from the burden of hitherto undeclared assets?”

“I appeal to the countrymen to do this. To the people who have undisclosed income, the Government of India has given a chance to declare such income. The government has presented before the country a special facility to disclose undisclosed income by the 30th of September.”

For those who voluntarily declare to the government their assets and their undisclosed income, no enquiry will be conducted. No questions as to from where all this wealth came and how it was acquired.

At the same time, I want to tell the people of the country that please consider this plan, which is up to 30th September as your last chance.

If any citizen is put through any difficulty, the one who does not want to follow due rules of government, then it will not be possible to help them.

“I want to say this to the people of the country that we do not wish that after the 30th September anything should happen that will cause difficulties for you. And so I say that please avail of this facility before this date and save yourselves from any possible trouble after the 30th of September.”

8th November 2016 at 8 PM Disbelief Panic Mode Gold Rush ATM Rush on 10th November Pressure on Banks Withdrawal Limits and changes Reasons for new norms and additional conditions Cash and Liquidity Crunch Initial lull in trade and business Reaction of Opposition Parties Media Reaction

Cash has been sucked out of the system It would take months to replace equal amount of cash Initial reaction would be to buy on need basis and conserve /

accumulate new notes Slow and steady shift to cashless transactions such as RTGS/

NEFT/ debit card/ credit card/e-wallet Contrary to popular theory, urban and rural would easily adapt

whereas semi-urban and semi-rural could struggle Cluster Banking / ATM on call / outsourced banking centers will

have to be created if society has to move from cash to cashless rapidly

Thrust would be towards cashless transactions.

Business would come down due to shock Next 6 months would see a dip in GDP Inflation would come down significantly Banks are expected to receive nearly Rs. 10 lakhs crores Money not deposited and simply retained is gain for RBI and

the Government Deficit could be wiped out More window for huge budget outlay If demonetized notes are written off, possibility of

Government printing that much of currency Government will have to pump in money by increasing

expenditure

Lesser appetite for non accounting of transactions in the short term period

Increased reporting and compliance Loss for certain businesses could be very significant Huge impact on corrupt politicians, authorities and others Impact on commerce and industry which are in possession of

unaccounted but not illegal income Some businesses could disappear Government vigil and further action would follow since media and

opposition have criticized the Government by stating that black money exists only in other assets

Re-start of economic activity Whether the problem of corruption has been arrested? Prime Minister should follow it up with Surgical Strike III on corruption

if the strike on black money has to succeed.

Huge Direct tax collections on account of new assesses / fresh taxes by old assesses / disclosure / higher tax compliance for future

Possible huge increase in advance tax payments on 15.12.2016.

Huge work load for the Department Information may be sought by the assessing officer under

Section 133 (6) of the Income Tax Act based on bank deposits or details furnished by the Banks

Indirect tax notices

When cash balance is available in the properly maintained books of accounts duly audited, deposit of such cash cannot be considered as income.

This is subject to

• Availability of source of income

• Availability of cash balance

• Explanation being accepted by the Authorities in case notice is issued.

If any sum is found credited in the books of an 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 so credited may be charged to income tax at the income of the assessee of that previous year

Where the assessee is a company not being a company in which public is substantially interested and the sums so credited consists of share application money or share premium or share capital etc. any explanation will be considered as not satisfactory unless

The other person being a resident in whose name the credit is recorded also offers an explanation about the nature and source and

Such explanation is satisfactory in the opinion of the AO

Where in any financial year Assessee is found to be the owner of any money, bullion, jewellery or other valuable article and

Such items are not recorded in the books of accounts for any source of income and

No explanation is offered about the nature and source The money/ value of bullion, jewellery or other valuable article

may be deemed to be the income of the Assessee for such financial year.

Section 69 – Unexplained investments Section 69B – Investments not disclosed in books of

accounts Section 69C – Unexplained expenditure Section 69D – Amount borrowed or repaid in hundi

Where income includes income referred to in Section 68 / 69 / 69A / 69B / 69C / 69D, the income tax payable shall be the aggregate of

• Tax at the rate of 30% on income referred to in Section 68 / 69 / 69A / 69B / 69C / 69D and

• Tax which the Assessee would have been charged on his total income as reduced by the amount referred to above.

No deduction of expenditure or allowance or set off is available.

Under reporting of income. Under reporting if income assessed is greater than

the returned income. Under reporting attracts penalty equal to 50% of

tax. If under-reporting is in consequence of mis-

reporting, penalty is equal to 200% of the tax on under reported income.

Misreporting would cover

• Misrepresentation or suppression of facts

• Failure to record investments in books of accounts

• Claim of expenditure not substantiated by evidence.

• Failure to record any receipt in the books of account having a bearing on the total income.

Bill No.229 of 2016 introduced in the Lok Sabha. Section 115BBE proposed to be amended from

01.04.2017. Amendments to Section 271AAB(1) Insertion of Section 271AAB(1A) Insertion of Section 271AAC Amendment to Section 2(9), Chapter II, Finance

Act 2016 Introduction to Chapter IXA (Section 199A to

199R) to Finance Act 2016

Where total income of an assessee includes

(a) any income referred to in Section 68 / 69 / 69A / 69B / 69C / 69D, and reflected in the return under Section 139; or

(b) income determined by the Assessing Officer includes any income referred to in Section 68 / 69 / 69A / 69B / 69C / 69D if not covered above, …..

Then the income tax payable shall be the aggregate of

• Tax at the rate of 60% on income referred to in Clause (a) or (b) above and

• Tax which the Assessee would have been charged on his total income as reduced by the amount referred to above.

Section 115BBE(2) which provides that no deduction of expenditure or allowance or set off would be granted continues.

Section 271AAB(I) to have a sunset clause upto the date the Amendment Bill receives the assent of the President.

Where a search is initiated under Section 132 after the Amendment Act receives the assent of the President, penalty is payable in addition to the tax • @ 30% of the undisclosed income of the specified previous year if the

Assessee through a statement under Section 132(4) admits undisclosed income and specifies the manner in which it was derived and substantiates the same and

• Pays tax with interest is any before the specified date in respect of the undisclosed income and

• Furnishes return for specified previous year declaring undisclosed income.

Penalty at 60% of the undisclosed income if it is not covered under the provisions of clause (a) above.

AO not withstanding anything contained in the Act other than Section 271AAB direct that if the income determined includes income under Section 68 / 69 / 69A / 69B / 69C / 69Dfor any previous year.

The Assessee shall pay penalty in addition to tax under Section 115BBE @ 10% of the tax payable under Section 115BBE(1)(i).

No penalty if income included in the return and tax under Section 115BBE has been paid on or before the end of the relevant previous year.

No penalty under Section 270A. Section 274 & 275 shall apply in relation to the penalty.

Existing surcharge rates on advance tax in respect of tax determined under Section 115BBE deleted.

Surcharge rates at 25% of advance tax in respect of income chargeable to tax under Section 115BBE(I)(i).

Chapter IXA of Finance Act 2016 effective from date notified.

Taxation and Investment Regime for Pradhan Mantri Garib Kalyan Yojana 2016.

Declaration of undisclosed income in the form of cash or deposit.

In an account maintained with a specified entity. Chargeable to tax for any AY commencing on or

before 01.04.2017. No deduction

Specified Entity shall mean RBI, Banking Company, Co-operative bank to which Banking Regulation Act applies, Head Post Office, Sub-Post Office or any other notified entity

Undisclosed income declared under Section 199C shall be chargeable to tax @ 30% notwithstanding anything contained in the Income Tax Act or any Finance Act.

Surcharge @ 33% of the tax called as Pradhan Mantri Garib Kalyan Cess.

Penalty @ 10% of the undisclosed income. Effective outflow 49.9% Section 199F provides that person making declaration should deposit an

amount not less than 25% of the undisclosed income in the Pradhan Mantri Garib Kalyan Deposit Scheme 2016.

No interest on said deposit Lock in for 4 years from date of deposit. Amount can be withdrawn after 4 years subject to conditions

specified in the scheme. Section 199G requires a declaration under Section 199C by a

person competent to verify the return of income Declaration to the Principal Commissioner or the Commissioner

notified. Tax, Surcharge and Penalty payable before filing declaration Deposit before filing declaration Proof of payment of tax, surcharge, penalty and deposit should

accompany the declaration.

Section 199I provides that undisclosed income declared as per Section 199C shall not be included in the total income of the declarant for any AY under the IT Act.

Undisclosed income declared cannot affect finality of completed assessments.

No refund of amount paid Section 199L provides notwithstanding anything contained

in any other law for the time being in force nothing contained in the declaration made under Section 199C(1) shall be admissible in evidence against the declarant for the purpose of any proceeding under any Act other than the Acts mentioned in Section 199O.

Section 199O provides that the scheme shall not apply to • Person in respect of whom an order of detention has been

issued under COFE POSA. • Prosecution of offence under Chapter IX to XVII of IPC, NDPS

Act, Unlawful Activities Prevention Act 1967, Prevention of Corruption Act 1988, Prohibition of Benami Property Transactions Act 1988, Prevention of Money Laundering Act, 2002.

• Any person notified under Section 3 of the Special Court (Trial Of Offences Relating To Transaction In Securities) Act 1992

• In relation to any undisclosed income and asset which is chargeable under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.

Section 199P provides that nothing contained in the Scheme shall be construed as conferring any benefit, concession or immunity on any person other than the person making the declaration under the Scheme.

Form of declaration, verification to be prescribed through the Rules.

This scheme is wider in scope than the earlier scheme Exclusions are very limited in the new scheme Earlier scheme contemplated a deferred outflow of 45%

whereas new scheme contemplates an instant outflow of 49.9% with the additional deposit requirement

No restrictions in the new scheme in the context of pending proceedings or notices

Earlier scheme covered income chargeable to tax either in the form of income or in the form of investments whereas new scheme covers income in the form of cash or deposits in a specified entry

Higher level of compliance W.e.f. AY 01.04.2017, if income includes income referred to in

68 / 69 / 69A / 69B / 69C / 69D and reflected in the return or is determined by the officer, the tax rate is 60% under Section 115BBE.

Surcharge at 25% of the tax Section 271 AAC provides for a penalty of 10% of the tax

payable under Section 115BBE(i)

K.VAITHEESWARAN ADVOCATE & TAX CONSULTANT

‘VENKATAGIRI’

Flat No.8/3 & 8/4, Ground Floor,

No.8 (Old No.9), Sivaprakasam Street,

T. Nagar, Chennai - 600 017, India

Tel.: 044 + 2433 1029 / 4048

402, Front Wing,

House of Lords,

15/16, St. Marks Road,

Bangalore – 560 001, India

Tel : 080 22244854/ 41120804

Mobile: 98400-96876

E-mail : vaithilegal@yahoo.co.in vaithilegal@gmail.com

www.vaithilegal.com