Taxation and Investment Regime for Pradhan Mantri Garib Kalyan Yojana, 2016 (PMGKY 2016)

The PMGKY was an amnesty scheme announced in November 2016 for the period running up to 10.05.2017. This scheme was for people who had not taken advantage of the previously concluded IDS and who continued to hold unaccounted-for money or had deposited it in their bank accounts after demonetisation.

The PMGKY scheme, which ended on 10.05.2017, saw income amounting to Rs. 4,900 crore being declared by 21,000 people with tax and penalty collections totalling Rs. 2,451 crore. This was much lower than the earlier four-month long tax compliance window of the IDS.

Name of the scheme

This scheme may be called the PRADHAN MANTRI GARIB KALYAN YOJANA, 2016. Taxation and Investment Regime for Pradhan Mantri Garib Kalyan Yojana, 2016 (PMGKY 2016) has commenced since 17.12.2016 and last date for declarations under the Scheme has been extended upto 10.05.2017.

Eligibility for Deposits

The deposit under this Scheme shall be made by any person who intends to declare undisclosed income under sub-section (1) of section 199C of the Taxation and Investment Regime for Pradhan Mantri Garib Kalyan Yojana, 2016.

This scheme can be availed by any person to whom below notices under any of the following provisions of the Act have been issued for any Assessment year:

(a)          Section 142(1) – Inquiry before assessment;

(b)         Section 143(2) – Assessment;

(c)          Section 148 – Issue of notice where income has escaped assessment;

(d)         Section 153A – Assessment in case of search or requisition;

(e)          Section 153C – Assessment of income of any other person.

The scheme can be availed by any person against whom a search/ survey operation has been initiated, and cash seized during search/ survey can also be declared.

The scheme can be availed on the deposits made in bank accounts prior to the financial year (FY) 2016-17 also

The scheme can be availed on cash deposits made in an account during the period 01 April, 2016 to 15 December, 2016 (i.e., prior to effective date of this scheme).

The scheme can also be availed for the undisclosed income deposited or repaid against an overdraft account/ cash credit account/ any loan account maintained with a bank or any specified entity.

"Declarant" means a person making the declaration under sub-section (1) of section 199C;

“Person” as defined under section 2(31) of the Income Tax Act

"person" includes—

(i)           an individual,

(ii)         a Hindu undivided family,

(iii)       a company,

(iv)       a firm,

(v)         an association of persons or a body of individuals, whether incorporated or not,

(vi)       a local authority, and

(vii)     every artificial juridical person, not falling within any of the preceding sub-clauses

Explanation.— For the purposes of this clause, an AOP or BOI or a local authority or an artificial juridical person shall be deemed to be a person, whether or not such person or body or authority or juridical person was formed or established or incorporated with the object of deriving income, profits or gains;

Declarations not eligible for the scheme in certain cases

The provisions of the scheme shall not be applicable in the following cases:—

(i)           CONSERVATION OF FOREIGN EXCHANGE AND PREVENTION OF SMUGGLING ACTIVITIES ACT, 1974,

Declarations in relation to any person in respect of whom an order of detention has been made under the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 subject to the conditions specified under the Scheme.

(ii)   Declarations in relation to prosecution for any offence punishable under 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;

(iii)  If the declarant is a person notified under section 3 of the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992;

(iv) BLACK MONEY (UNDISCLOSED FOREIGN INCOME AND ASSETS) AND IMPOSITION OF TAX ACT, 2015

The scheme shall not apply to undisclosed income in the form of deposits in foreign bank account, as that is chargeable to tax under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.

(v)  The scheme is not available for declaration of income which is represented in the form of any asset other than cash, and deposits like jewellery, stock or immovable property.

Declaration not admissible in evidence against declarant

Declaration made under this scheme shall not be admissible in evidence against the declarant for the purpose of any proceeding under any Act, other than the following specified Acts:

(i)              Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974,

(ii)            Indian Penal Code,

(iii)          Narcotic Drugs and Psychotropic Substances Act, 1985,

(iv)          Unlawful Activities (Prevention) Act, 1967,

(v)            Prevention of Corruption Act, 1988,

(vi)          Prohibition of Benami Property Transactions Act, 1988

(vii)        Prevention of Money-Laundering Act, 2002

(viii)      Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992

(ix)          Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015

Deposits can be declared

Any form of deposits maintained with a Bank or Post Office like:-

(a)       Savings Account

(b)      Current Account

(c)       Recurring Deposit Account

(d)      Fixed Deposits

(e)       Senior Citizen Savings Scheme

(f)       Monthly Income Scheme

(g)       Jan-Dhan Yojana Account Can be Declared under the PMGKY.

Tax rate to be paid

In respect of undisclosed income in the form of cash & bank deposit for period upto Financial Year ended 31 March 2016 (i.e. upto Assessment year 2016-17), a declarant is required to pay: the exact is 49.9 percent, the breakup for which is as follows: (A)  Tax, Surcharge, Penalty payable:

(i) Tax @ 30% of income declared

(ii) Pradhan Mantri Garib Kalyan Cess @33% of tax

(iii) Penalty @10% of income declared

(B) Pradhan Mantri Garib Kalyan Deposit Scheme, 2016 25% of declared income to be deposited in interest free Deposit Scheme for four years. This amount is proposed to be util ised for the schemes of irrigation, housing, toilets, infrastructure, primary education, primary health, livelihood, etc.

       “TAX” AND “DEPOSIT” – IN BRIEF

A	Income Tax	Rate
(i)	Tax	@30% of income declared ii. Surch
(ii)	Surcharge (also referred to as, Pradhan Mantri Garib Kalyan Cess)	@33% of tax (i.e. appx 10%)
(ii)	Penalty	@10% of income declared
	Total [(i) + (ii) + (iii)]	@50% of income (approx.)
B	Deposit
	Additionally, a declarant is required to deposit 25% of declared income to be deposited in interest free Deposit Scheme (referred to as Pradhan Mantri Garib Kalyan Deposit Scheme, 2016) for 4 years from the date of deposit.

EXAMPLE

For Undisclosed income of Rs. 10,00,000

v    Tax @ 30% of the undisclosed income, Tax will be Rs. 3,00,000

v    Penalty @ 10% of the undisclosed income, penalty will be Rs. 1,00,000

v    Surcharge @ 33% of tax i.e. 33% of Rs. 3,00,000 will be Rs. 99,000

Total tax & penalty payable: Rs 4,99,000

And above that 25% of undisclosed income in a Deposit Scheme i.e Rs. 2,50,000 will be locked in for 4 years without accruing any interest.

Cash seized by the Department during search/ seizure operation and deposited in the Public Deposit Account may be allowed to be adjusted for making payment of tax at the rate of 49.9% under the scheme, on the request of a person from whom the cash is seized. However, the amount shall not be allowed to be adjusted for making at least 25% deposit under PMGKD scheme.

Any advance taxes paid, taxes withheld or taxes collected at source (TCS) on the declared undisclosed income under this scheme shall not be given credit against the taxes to be paid at the rate of 49.9%.

No Refund of taxes paid under the Scheme

Section 199K of the Finance Act, 2016 states that tax, surcharge and penalty paid under the scheme shall not be refundable.

Forms under Pradhan Mantri Garib Kalyan Yojana

(a)    Form 1 (Form of Declaration under section 199C)

(b)  Form 2 (Certificate of Declaration under section 199C issued by the Principal CIT/PDIT or CIT)

Filing of declaration

A declaration under the Scheme can be filed:

(a)  Electronically under digital signature with CIT(CPC) Bengaluru or jurisdictional Principal CIT/PDIT or CIT notified under section 120 of the Income-tax Act, 1961.

(b)  Electronically through Electronic Verification Code (EVC) or in print form with jurisdictional Principal CIT /CIT notified under section 120 of the Income-tax Act, 1961.

Requirement of deposit of 25 percent of undisclosed income

After paying tax as specified above, the person shall also have to deposit 25 percent of the undisclosed income in the Pradhan Mantri Garib Kalyan Deposit Scheme, 2016 with a lock-in period of four years.

Along with the above-said tax, penalty, and cess, the declarant will have to deposit 25% of undisclosed income in a Deposit Scheme to be notified by the RBI under the ‘Pradhan Mantri Garib Kalyan Deposit Scheme, 2016’. This amount is proposed to be utilized for the schemes of irrigation, housing, toilets, infrastructure, primary education, primary health, livelihood, etc., so that there is justice and equality. This is a FREE deposit scheme of four years. The withdrawal of amount shall be after four years and will be subject to some conditions as may be specified.

No interest on deposit

The 25 percent deposited shall not carry interest.

Form of the deposits

(1) The deposits shall be held at the credit of the declarant in Bonds Ledger Account maintained with Reserve Bank of India.

(2) A certificate of holding the deposit shall be issued to declarant in Form I.

(3) The Reserve Bank of India shall transfer the deposit received under this Scheme into the designated Reserve Fund in the Public account of the Government of India.

Effect of Valid Declaration

Where a valid declaration as detailed above has been made, the following consequences will follow:

(a) The amount of undisclosed income declared shall not be included in the total income of the declarant under the Income-tax Act for any assessment year;

(b)  A declarant under this Scheme shall not be entitled, in respect of undisclosed income or any amount of tax and surcharge paid thereon, to re-open any assessment or reassessment made under the Income-tax Act or the Wealth-tax Act, 1957, or to claim any set-off or relief in any appeal, reference or other proceeding in relation to any such assessment or reassessment.

(c) The contents of the declaration shall not be admissible in evidence against the declarant for the purpose of any proceeding under any Act, other than the Acts referred in section 199O (scheme not to apply to certain persons)cases where scheme shall not be applicable.

No Double Taxation

Section 199-I of the scheme makes it clear that in future years, if the assessee claims before the Assessing Officer that he had made certain disclosures under this scheme and then Assessing Officer shall reduce amount of undisclosed income declared under this scheme from the total income of the declarant for any tax year.

Secrecy of Information

Under this scheme, there is a specific reference to section 138 of the Income Tax Act, in section 199N of the scheme. Thus, under this scheme the information contained in the declaration will be kept confidential.

Non declaration of undisclosed cash or deposit in accounts under the Scheme

(a)    Non declaration of undisclosed cash or deposit in accounts under the Scheme will render such undisclosed income liable to tax under section 115BBE (leviable on income under section 68, 69, 69A, 69B, 69C or 69D).

(b)  Tax payable under section 115BBE increased from 30% to 60%. Surcharge on income taxable under section  115BBE is also leviable @ 25% of tax payable. Effective tax rate for income assessable under section 68, 69, 69A, 69B, 69C or 69D comes to 75% plus cess totaling to 77.25% of such income. (Amended by “The Taxation Laws (Second Amendment) Act, 2016”)

(c)    Further, penalty @ 10% of tax payable under section 115BBE could be levied under new section 271AAC. No penalty would be leviable if income is declared in return of income & tax is paid before the end of previous year.

Declaration to be void in certain cases

In the following cases, the declaration shall be treated as void:

(i)     Declaration made by misrepresentation or suppression of facts; or

(ii)   Declaration made without payment of tax , surcharge or penalty or without depositing the amount in the Deposit Scheme

Subscription and Mode of investment in the Bonds Ledger Account

(i) The deposits shall be accepted at all the authorised banks notified by Government of India.

(ii) The deposits shall be made in multiples of rupees one hundred.

(iii) The deposit under sub-section (1) of section 199F by a declarant shall not be less than twenty-five per cent. of the undisclosed income to be declared under sub-section (1) of section 199C of the Act.

(iv) The entire deposit to be made under sub-section (1) of section 199F under this Scheme shall be made, in a single payment, before filing declaration under sub-section (1) of section 199C.

(v) The deposit shall be made in the form of cash or draft or cheque or by electronic transfer and shall be drawn in favour of the authorised bank accepting such deposit.

Effective date of deposit

The effective date of opening of the Bonds Ledger Account shall be the date of tender of cash or the date of realisation of draft or cheque or transfer through electronic transfer.

Applications

(1) An application for the deposit under this Scheme shall be made in Form II clearly indicating the amount, full name, Permanent Account Number (hereinafter referred to as ‘PAN’), Bank Account details (for receiving redemption proceeds), and address of the declarant: Provided that if the declarant does not hold a PAN, he shall apply for a PAN and provide the details of such PAN application along with acknowledgement number.

(2) The application under sub-paragraph (1) shall be accompanied by an amount which shall not be less than twenty-five per cent. of the undisclosed income to be declared in the form of cash or draft or cheque or through electronic transfer as provided under sub-paragraphs (3) and (4) of paragraph 4.

Nomination

(1) A sole holder or a sole surviving holder of a Bonds Ledger Account, being an individual, may nominate in Form III, one or more persons who shall be entitled to the Bonds Ledger Account and the payment thereon in the event of his death.

(2) Where any amount is payable to two or more nominees and either or any of them dies before such payment becomes due, the title to the Bonds Ledger Account shall vest in the surviving nominee or nominees and the amount being due thereon shall be paid accordingly. In the event of the nominee or nominees predeceasing the holder, the holder may make a fresh nomination.

(3) A nomination made by a holder of Bonds Ledger Account may be varied by a fresh nomination, or may be cancelled by giving notice in writing to the Authorised Bank in Form IV.

(4) Every nomination and every cancellation or variation shall be registered at the Reserve Bank of India through the authorised bank and shall be effective from the date of such registration.

(5) If the nominee is a minor, the holder of Bonds Ledger Account may appoint any person to receive the Bonds Ledger Account or the amount due in the event of his death.

Transferability

The transferability of the Bonds Ledger Account shall be limited to nominee or to the legal heir of an individual holder, in the event of his death.

Tradability against Bonds

The Bonds Ledger Account shall not be tradable.

Repayment of the deposit will be made after a period of 4 years

The Bonds Ledger Account shall be repayable on the expiration of four years from the date of deposit and redemption of such Bonds Ledger Account before its maturity date shall not be allowed.

Declaration under Pradhan Mantri Garib Kalyan Yojana Scheme, 2016 after search and seizure – Retention was held to be valid – Court directed to release of small part of seized amount

The assessee filed a writ petition challenging a portion of Circular No. 2 of 2017 dated January 18, 2017 (2017) 390 ITR (St.) 125) by which the Board disabled a person from seeking adjustment of the cash seized by the Department and deposited in the public deposit account, towards payment of tax, surcharge and penalty under the Scheme. The Court held that, retention was held to be valid however the Court directed to release of small part of seized amount. The Court also observed that release would not hamper either any investigation or further proceedings on the part of the Department. [Jaya Balajee Real Media (P) Ltd. v. CIT (2018) 404 ITR 124 : 303 CTR 489 : 167 DTR 465 (T&AP)]

Pradhan Mantri Garib Kalyan Yojna, 2016 – Court declined to enter into or encroach upon policy making arena and suggest a different policy on ground that it was not within its domain [Constitution of India]

Challenging Section 199A of the Finance Act, 2016, Pradhan Mantri Garib Kalyan Yojna, 2016, the petitioner urged for a different and better scheme which could have got more good money in banks and honest taxpayers would have deposited amount. However, Court declined to enter into or encroach upon policy making arena and suggest a different policy on ground that it was not within its domain court, therefore there was no justification to issue notice in instant petition and accordingly it was dismissed. [Siddharth Mehta v. UOI (2017) 244 Taxman 289 (SC)]