The mammoth demonetisation exercise has brought taxation into focus like never before. The positive and adverse effects of the disruptive decision continue to be hotly debated upon, but it is clear that it has opened up one possibility: expansion of India's tax base, as several informal entities and tax evaders are likely to come into the tax fold.
While the amnesty scheme for those with unaccounted cash announced by the finance ministry post demonetisation has been the center of attention of late, several other measures taken this year have the potential to have a far-reaching impact on your finances. Read on to know more about these changes.
(In)Voluntary Disclosure Schemes
Amongst the plethora of decisions and rollbacks that followed the demonetisation announcement, the one that stands out is the amnesty scheme for black money hoarders that allows them to escape action by shelling out 50% of unaccounted cash holdings – 30% as tax, 10% penalty and 33% cess on the tax paid. In addition, they will have to deposit 25% of the undisclosed income in a scheme that will be notified by the government and the Reserve Bank of India (RBI) in due course. A failure to make use of this opportunity will result in tax incidence of 60%, plus 25% surcharge. Moreover, the assessing officer can impose a penalty of 10% on the tax payable. The rate of taxes can go up to as high as 82.5%.
This amnesty scheme follows the Income Disclosure Scheme (IDS) that closed on September 30. IDS had provided a window to tax evaders to declare their undisclosed income after paying tax of 45%.
In a bid to popularise cashless transactions, the government announced a series of steps recently, including waiving off 15% service tax on credit, debit and other card transactions of up to Rs 2,000. Thus, costs will come down for acquiring banks and merchants, who in turn could pass on the cost reduction benefits to customers.
Tracking Transactions with Tax
In hindsight, the move to insist on tax collection at source of high-value transactions could be seen as a precursor to demonetisation and shift towards cleaner electronic payment transactions. The Finance Bill 2016-17 mandated that car dealers collect 1% tax on ex-showroom price of luxury cars worth over Rs 10 lakh before handing it over to the customer. In the same vein, 1% tax collected at source (TCS) was made applicable to acquisition of goods and services worth more than Rs 2 lakh in cash. For cash purchases of jewellery or bullion, this limit is a little higher at Rs 5 lakh.
GST on the anvil
While the implementation of the much-anticipated Goods and Services Tax still hangs by a thread, the Act itself got the green signal when the parliament passed it in June. Further in November, the GST Council, made up of central and state government ministers, arrived at four tax slabs – 5%, 12%, 18% and 28% - applicable to various goods and services. However, certain essential commodities like foodgrains will be exempt from tax. On the other hand, cigarettes and luxury goods will attract the peak rate of 28%, apart from a ‘sin’ cess.
Return of not-so-saral Forms
Tax-payers with high income levels were flummoxed with a new rule inserted this year in the tax return forms. It required tax-payers with a total income of over Rs 50 lakh to furnish details of the cost of their movable as well as immovable assets in the newly-introduced schedule AL in forms ITR 1, 2, 2A, 3, 4 and 4S. Similarly, tax-payers were also asked to provide details of the liabilities in relation to these assets.
Put together, all these steps can be seen as efforts to curtail cash transactions and tax evasion. And, given the fast evolving post-demonetisation scenario, chances are that FY2017 will only see more hectic activity on the tax policy front.