The lower house of Parliament (Lok Sabha) passed the Taxation Laws (Second Amendment) Bill 2016 (the Bill) on 29 November 2016, which aims to impose a higher tax rate and more stringent penalty provisions in respect of black money.

The overview of the amendments proposed is summarised below:

Taxation and Investment Regime for Pradhan Mantri Garib Kalyan Yojana 2016 (PMGKY): This alternative scheme was introduced in the Bill, where a person who voluntarily declares its undisclosed income (the declarant) will be required to pay a 30% tax and 10% penalty on the income. An additional 33% surcharge tax will also be levied. This calculates to a combined approximate total of 50% taxes and penalties being imposed on the income.

25% of the income (after taxes) will remain with the declarant. The remaining 25% will be deposited into an interest-free deposit scheme, which will be locked-in for 4 years and will be used to fund welfare programmes such as irrigation, housing, toilets, infrastructure, primary education and health.

Provisions for taxation and penalty of unexplained credit, investment, cash and other assets (under section 115BBE and 271AAC of the Income Tax Act 1961)

If a person refuses the voluntary declaration under the PMGKY scheme mentioned above and is caught under these provisions, a total of taxes and penalties of up to 85% of the income will be imposed.

The penalty for search seizure cases (under section 271AAB of the Income Tax Act 1961): For income that is found in raids, a penalty of up to 60% of the income will be imposed on the assessee. However, if the person admits to how the undisclosed income was derived, pays the relevant taxes (including interest) and furnishes the tax return, the penalty will be reduced to 30% of the income.