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August 1, 2020

Govt to consider amnesty scheme for citizens hoarding gold illegally

Govt to consider amnesty scheme for citizens hoarding gold illegally

Gold has soared almost 30% to a record this year as the pandemic drove demand for havens amid a weaker dollar and low interest rates. Goldman Sachs Group Inc. has said that bullion is the currency of last resort and forecasts a surge to $2,300 an ounce. The Finance Ministry is considering an amnesty scheme for residents with illicit stash of gold, as part of an effort to crack down on tax evasion and cut its dependence on imports and to declare the same to the Income-Tax authorities and pay penalty and taxes accordingly.

What do you mean by an Amnesty Scheme?

Amnesty is a limited-time opportunity for a specified group of taxpayers to pay a defined amount, in exchange for forgiveness of a tax liability (including interest and penalties) relating to a previous tax period(s) and without fear of criminal prosecution. In some cases, legislation extending amnesty also imposes harsher penalties on those who are eligible for amnesty but do not take it. Tax amnesty is one of voluntary compliance strategies to increase tax base and tax revenue. Introduction of amnesty in any fiscal year is to help a state treasury raise tax revenues, adding beneficiaries who have not declared their assets previously.

Instances of previous Amnesty schemes:-

  • Black Money Act, 2015

The Act, introduced in May of 2015, allowed Indians to declare overseas assets acquired from previously undisclosed taxable income or gains and receive protection from prosecution. Disclosures made under the Act needed to be made by September 30, 2015 and the associated taxes and penalties had to be paid by December 31 that year.

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Taxpayers making declarations under the scheme had to pay tax at 30% of the Fair Market Value (FMV) of the undisclosed foreign assets. In addition, they taxpayers were liable to pay an amount equal to the tax as penalty. Total taxes and penalties would therefore amount to 60% of the FMV of the assets.

The government refused to call it amnesty scheme since a penalty was imposed on the declarants.

  • Income Declaration Scheme, 2016

This was announced in the Budget for 2016-17. Under the scheme, those who have not declared their income or assets in the past years could do so now, but by paying 30% income tax, 25% of tax as krishi kalyan cess and 25% as penalty thereon. However, the taxes could be paid in three instalments.

The scheme that opened on June 1, 2016 and closed in September that year, allowed declarants to submit 25% of the tax liability by November, a similar amount by March 2017 and 50% by September 2017.

  • Direct Tax Dispute Resolution Scheme, 2016:

This scheme was announced in the Budget for 2016-17 to settle cases pending with the Commissioner of Income Tax (Appeals) as on February 29, 2016. The scheme, open from June 1, 2016 to December 31 that year (later extended till January 15, 2017), was also applicable to cases pending litigation due to retrospective amendments at various levels. The scheme offered complete waiver of penalty and did away with prosecution if the amount of disputed tax was Rs 10 lakh or less, and if the tax liability was paid along with interest. If the disputed amount was over Rs 10 lakh, the declarant was required to pay 25% of the minimum penalty leviable, along with the due tax and interest.

  • PM Garib Kalyan Yojana, 2017:

The scheme, launched after demonetisation of high-value currency in November, 2016, gave a chance to those holding black money in the form of banned Rs 500 and Rs 1,000 notes to come clean by paying a total tax of 50%. Besides, 25% of the money was to be invested in the PM Garib Kalyan Yojana which would be locked in there for 4 years. However, no interest would accrue when the money was refunded after four years.

  • Sabka Vishwas Scheme:

The Legacy Dispute Resolution Scheme, 2019 sought to resolve pre-GST service and excise duty litigations involving Rs 3.75 trillion.

The scheme was on for four months, from September 1, 2019 to December 31, 2019, but was later extended till January 15, 2020.

Under the scheme, 70% of the tax dues under Rs 50 lakh would be waived. But if the amount was over Rs 50 lakh then the waiver was 50%. Dues recoverable as arrears (on matters that have attained finality), 60% dues would be waived if the tax involved was up to Rs 50 lakh and 40% if the amount involved was more than Rs 50 lakh.

  • Vivad se Vishwas:

The Direct Tax Vivad se Vishwas Bill, 2020, offers waiver of interest, penalty and prosecution for settlement of these disputes pending before various authorities.

While a complete waiver of interest and penalty will be given if payment is made by March 31, an additional ten per cent of the disputed amount will be payable after that.

In case of tax arrears pertaining to only disputed interest or penalty, 25% of disputed penalty or interest will need to be paid while settling appeals up to March 31, 2020 and 30% if payment is made after that.

Gold Amnesty Scheme to be proposed by Modi Government

Under the proposition made to Prime Minister Narendra Modi, the government plans to urge people with unaccounted holdings of gold to declare it to tax authorities and pay fines or penalty. The proposal being at an early stage, authorities are seeking feedback from officials concerned.

Prime Minister Modi had unveiled the three state-backed plans in 2015 to try to tap the world’s largest private gold stash of about 25,000 tonnes held by households and institutions to trim physical demand, and reduce imports by providing people with alternative avenues for investment. The programmes failed to generate interest as a section of the people did not want to part with their gold, usually in the form of jewellery and worn on special occasions while others feared being penalized by tax authorities. Consumers who declare their hoard will need to deposit some of the legalized gold with the government for a few years, they said.

There was a similar speculation in 2019 about a possible gold amnesty scheme to be announced by the government in 2019, which was denied by the government later.

Amnesty Schemes also has many opponents because of the long-term effects on society. Tax amnesty gives an advantage to those who break the law. People lose confidence in justice and punishments lose its effectiveness. It may lead to decreasing morality and increasing tax crimes. Some of these negative effects may be eliminated with strict regulation and careful choice of who will be tax amnesty applied on.

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