Black money is a big issue in our country. The Narendra Modi government had hoped that the demonetisation of currency notes of Rs 500 and Rs 1,000 — announced on November 8, 2016 — would help to tackle the problem and that the trove of undisclosed currency notes in circulation would be controlled.

Despite demonetisation and government efforts to promote transactions through the banking channel and use credit cards, debit cards and digital platforms such as Paytm, currency in circulation has not reduced. If anything, it has only risen dramatically over the past six years.

Disclosure scheme

The Income Declaration Scheme was last declared in the Finance Act, 2016. Section 184 provided that the undisclosed income declared under section 183 within the time specified therein shall be chargeable to tax at the rate of 30 per cent of such undisclosed income.

Further, the amount of tax chargeable under the scheme was to be increased by a surcharge, to be called the Krishi Kalyan Cess, at the rate of 25 per cent of such tax so as to fulfil the government’s commitment to work towards the welfare of farmers.

The person making a declaration of undisclosed income would in addition to tax and surcharge under section 184, will also become liable to penalty at the rate of 25 per cent of such tax. Thus, effectively, the aggregate tax burden was 45 per cent of undisclosed income declared under the scheme. The amount of tax, surcharge penalty was allowed to be deposited in cash vide CBDT instruction dated September 8, 2016.

The scheme was in operation from June 1, 2016 till the midnight of September 30, 2016 with an aggregate of Rs 65,250 crore worth of hitherto undeclared incomes in the form of cash and other assets being declared.

However, the amount declared fell far short of expectations in view of the estimates of undisclosed money and assets amassed by the public. This led to the demonetisation of high-value notes.

According to the prevalent situation, there is considerable scope for the declaration of another scheme to unearth undisclosed income in the forthcoming budget. Finance minister Nirmala Sitharaman would do well to consider and declare an Income Declaration Scheme, 2023 with a rate of tax, surcharge and penalty similar to that in the 2016 scheme. It is expected to garner undisclosed income and assets of about Rs 1 lakh crore.

Vivad Se Vishwas

The Vivad Se Vishwas Scheme, 2020 was declared to minimise the tax cases pending in appeal in various forums. It was well meaning and a reasonably successful scheme. Numerous taxpayers availed themselves the scheme to end tax disputes.

Through Vivad se Vishwas 2020, the Central Board of Direct Taxes was able to collect tax of as much as Rs 54,000 crore and the Central Board of Excise and Customs garnered another Rs 38,000 Crore. Such a scheme may be announced again to reduce pending litigations.

Such a strategy will be useful for the department as well as taxpayers in getting rid of long-drawn appeals pending before various forums. However, the scheme may be reviewed and further simplified.

The Budget 2023 to be presented by the finance minister will be the last full budget of the Modi government. Elections are due to be held in several states this year and will be followed by the General Elections sometime in April-May 2024.

The finance minister would do well to declare an exemption limit up to Rs 5 lakh. As a matter of fact, even now a tax rebate of Rs 12,500 is allowed under section 87A. This means that if a person has an annual income of up to Rs 5 lakh, he need not pay tax.

However, to ensure ease of doing business, a straight exemption of Rs 5 lakh for all taxpayers will be appreciated and will help people cope with the prevailing rate of inflation. Some more money in the taxpayer’s pocket will only spur growth in demand and boost the economy as a whole.

Tax rates

The highest tax and surcharge etc payable by individual taxpayers is as much as 42.74 per cent in case of taxpayers with an income exceeding Rs 5 crore as they have to pay a surcharge of 37 per cent.

The tax comprises 30 per cent tax, 37 per cent surcharge — which makes it 41.1 per cent — and then 4 per cent health and education cess is to be added which makes an aggregate effective rate of 42.74 per cent on the assessee..

In contrast, domestic companies pay a tax rate of only 22 per cent if they do not claim any deduction or exemption under Section 10AA; deductions under Section 32AD, 33AB, 33ABA, 35(1)(ii),35(1)(iia), 35(1)(iii), 35 (2AA),35(2AB) 35AD, 35CCC, 35CCD;and Chapter VIA (other than Sec. 80JJAA or sec. 80M).

In such cases, the aggregate tax burden on a company comes to 25.17 per cent (including 10 per cent surcharge and a 4 per cent health and education cess.

It is expected that the finance minister will peg the rate of tax in case of individuals at 22 per cent and also limit surcharge to only 10 per cent. The FM should appreciate that non-corporate taxpayers are also important in spurring economic growth. Empirical evidence shows that lower tax rates ensure greater tax collections.

To conclude: the tax rates, tax provisions and procedures have to be made simpler in a real sense!

Narayan Jain is author of books How to Handle IncomeTax Problems and Income Tax Pleading & Practice with his co-author CA Dilip Loyalka. He is also National Deputy President of AIFTP.Email npjainadv@gmail.com