On November 30, 2016, the Taxation Laws (Second Amendment) Bill 2016 was passed in the Lok Sabha to amend the Income Tax Act 1961.
Amendments were made with respect to treatment of unaccounted money or black money.
The government reiterated that amendments to the IT Act were made essentially because people were trying to launder demonetized currency.
Let's take a look at key-changes.
The new Income Tax laws
Undisclosed income: Two kinds of treatment
The amendments provide that those who declare black money to banks will be required to pay 50% tax, inclusive of surcharge and penalty.
A quarter of the amount declared will be locked up for four years; remaining 25% will be available for immediate use.
However, those who don't declare and are caught with unexplained cash/deposits will pay 60% tax plus penalties amounting to 85%.
Diverting funds towards the less-privileged
Those who declare undisclosed income pay 30% tax and a surcharge called 'Pradhan Mantri Garib Kalyan (PMGK) Cess' of 33% upon the tax.
25% of this declared income is then locked-in for 4 years in PMGK Deposit Scheme, 2016.
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No change in gold jewellery
The government issued a clarification that tax amendments had no new provision with respect to taxation of inherited gold/jewellery.
Holding jewellery upto 'any extent' was fully protected if acquired with declared wealth.
If during search operations, gold doesn't match individual's income, even then upto 500 grams per married woman, 250 grams per unmarried woman and 100 gms per male member, gold won't be seized.
Lack of clarity on small deposits
Sanjay Sanghvi, tax partner, Khaitan and Co., observed that amendments contained no mention for small deposits of upto Rs.2.5 lakh and said that, "This is likely to create a widespread nervousness and confusion for a lot of people."