The government has been keeping a tab on people flush with black money. The latest to come under its scanner are those who have deposited demonetised currency notes into other people’s bank accounts (benami deposits) to convert them into white money.
Now, neither the actual depositors nor the recipients of such deposits would have had any reason for worry but for the two recent shocks delivered by the government. One, with the Lok Sabha’s recent approval of an amendment to the Income Tax Act, declaring such deposits as ‘unexplained investment’ in your tax returns will attract a higher tax than before as well as a penalty.
Today, you can declare your unexplained investments, unexplained money, bullion and other valuables and unexplained expenditure to the tax department and pay tax under Section 115BBE. “Since the source of income for these cannot be explained, it attracts a tax of 30 per cent plus applicable surcharge and cess,” says Amit Maheshwari, Managing Partner, Ashok Maheshwary and Associates. Once the amendment is enforced, the tax rate (including the surcharge) will go up to 75 per cent. An additional penalty of 10 per cent of the tax payable too will be imposed.
Two, with the implementation of the new Benami Act, the government has threatened action (such as imprisonment up to seven years) against both parties associated with such deposits. Earlier, the recipients of such money would simply declare it as unaccounted deposits and pay tax on them.
So, how will the government proceed against such deposit holders?
According to Amit Agarwal, Partner, Nangia & Co, such deposits shall be first proceeded against the account holder, in view of unaccounted deposits being disproportionate to his known source of income. They shall be taxed in the hands of the account holder under Section 115BBE.
Furthermore, as SR Wadhwa, former Chief Commissioner of Income-tax and Chairman, Income Tax Settlement Commission, says, action under the new Benami Act won’t be easy as the prosecuting agency will have to prove that the person in whose name the money is deposited is not the real owner and that it has been provided for by somebody else.