Circular No. 43/2016

Explanatory notes on provisions of the taxation and investment regime for pradhan mantri garib kalyan yojana 2016 as contained in chapter ix a of the finance act 2016

What this is

Circular No. 43/2016 was issued by the Central Board of Direct Taxes on 27 December 2016. Its subject is Explanatory notes on provisions of the taxation and investment regime for pradhan mantri garib kalyan yojana 2016 as contained in chapter ix a of the finance act 2016.

These are the Board’s explanatory notes to a Finance Act. They are the department’s account of what the amendments were meant to do, and they are cited constantly — but the words of the Act govern where the two part.

What it does

Explains the Taxation and Investment Regime for Pradhan Mantri Garib Kalyan Yojana, 2016, the declaration scheme put into Chapter IX-A of the Finance Act, 2016 by the Taxation Laws (Second Amendment) Act, 2016, enacted on 15 December 2016. A person holding undisclosed income in the form of cash or a deposit in an account with a specified entity — banks, post offices and the like — may declare it and pay tax at 30 per cent of the declared income, a surcharge called the Pradhan Mantri Garib Kalyan Cess at 33 per cent of that tax, and penalty at 10 per cent of the declared income, coming in all to 49.9 per cent. On top of that, not less than 25 per cent of the declared income must be deposited in the Pradhan Mantri Garib Kalyan Deposit Scheme, 2016 notified separately by the Department of Economic Affairs. A declaration may cover income chargeable for any assessment year commencing on or before 1 April 2017, and no expenditure, allowance or set-off of loss is allowed against the declared income. The Scheme opened on 17 December 2016 and was to remain open for declarations and deposits up to 31 March 2017.

Why it was issued

The Board's explanatory notes on a new Chapter inserted in the Finance Act, 2016, issued days after the Scheme opened, following demonetisation.

Who it reaches

Persons holding undisclosed cash or bank deposits as at that time
Depositors who had put unaccounted cash into accounts after demonetisation
Banks and post offices as the specified entities holding those deposits

The instrument, as the Board published it

The department publishes this one only as a PDF, so the words below were read out of that PDF by machine. That reading can carry its own mistakes — a misread number, a broken line. Check the signed document before you rely on a figure in it. The reading also stopped short of the end of the document: what is below is the opening, not the whole of it.

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Circular No.43 of 2016
F.No. 142/33/2016-TPL
Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes
(TPL Division)
***
Dated: 27th December,2016
EXPLANATORY NOTES ON PROVISIONS OF THE TAXATION AND INVESTMENT
REGIME FOR PRADHAN MANTRI GARIB KALYAN YOJANA, 2016 AS CONTAINED
IN CHAPTER IX-A OF THE FINANCE ACT, 2016
Introduction
1. The Taxation Laws (Second Amendment) Act, 2016 has been enacted by Parliament
on 15.12.2016. The said Act has inter alia amended the provisions of Finance Act, 2016 and
inserted a new Chapter on, 'The Taxation and Investment Regime for Pradhan Mantri
Garib Kalyan Yojana, 2016 (hereinafter 'the Scheme') in the Finance Act, 2016.
2. The Scheme provides an opportunity to persons having undisclosed income in the
form of cash or deposit in an account maintained with a specified entity (which includes
banks, post office etc.) to declare such income and pay tax, surcharge and penalty totaling
in all to 49.9 per cent. of such declared income. Besides, the Scheme provides that a
mandatory deposit of not less than 25% of such income shall be made in the Pradhan
Mantri Garib Kalyan Deposit Scheme, 2016(hereinafter 'the PMGKY Deposit Scheme')
which has separately been notified by the Department of Economic Affairs. The Scheme
has commenced on 17.12.2016 and shall remain open for declarations/deposit upto
31.03.2017.
Scope of the Scheme
3. A declaration under the aforesaid Scheme may be made in respect of any income in
the form of cash or deposit in an account maintained by the person with a specified entity,
chargeable to tax under the Income-tax Act for any assessment year commencing on or
before the 1st day of April, 2017. No deduction in respect of any expenditure or allowance
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or set-off of any loss shall be allowed against the income in respect of which a valid
declaration is made under the Scheme.
Tax, surcharge, penalty & deposit under the Scheme
4. The person making a declaration under the Scheme would be liable to pay tax at the
rate of thirty per cent. of the undisclosed income as increased by surcharge to be called the
Pradhan Mantri Garib Kalyan Cess calculated at the rate of thirty-three per cent. of such
tax. In addition, penalty at the rate of ten per cent. of the undisclosed income shall be
payable.

What to watch

The Scheme closed on 31 March 2017; it is spent and can no longer be availed of.
The 49.9 per cent is not the whole cost — a further deposit of at least 25 per cent of the declared income had to go into the Deposit Scheme, which is a lock-in, not a tax.
Only cash and deposits with a specified entity could be declared; undisclosed income in any other form was outside this Scheme.
The text available here breaks off after the paragraph on tax, surcharge, penalty and deposit, so the notes on the manner of declaration, the consequences of a false declaration and the rest of the Chapter are not in the extract.

Where you meet it

In an assessment or penalty proceeding for the demonetisation period where cash deposits are in issue and a declaration under this Scheme is set up as the explanation, and in disputes over the deposit locked in under the Deposit Scheme.

An example

Ours, not the Board’s: a worked case built from the rule the instrument sets, to show how it falls out.

A person declaring Rs. 1,00,00,000 of undisclosed cash pays tax of Rs. 30,00,000, cess of Rs. 9,90,000 being 33 per cent of that tax, and penalty of Rs. 10,00,000 — Rs. 49,90,000 in all, or 49.9 per cent. He must also place at least Rs. 25,00,000 in the Pradhan Mantri Garib Kalyan Deposit Scheme, 2016, leaving him about Rs. 25,10,000 free in hand.

What it names

It mentions. Circular No. 43/2016

← Circular No. 1/2017 · Circular No. 42/2016 →

A circular binds the department, not you and not a court. The Board issues a circular to its own officers. An assessee may hold the department to a circular that helps him; the department cannot hold an assessee to one that hurts him, and the Tribunal and the courts decide the law for themselves.

Source: the Income Tax Department’s own published text — its page for this instrument.