This is a cess imposed on those who discloses undisclosed income out of their savings made in banks after the demonetization day. The PMGK Cess and other tax measures were introduced by FM Arun Jaitely in the Parliament on 28th of Novermber 2016 on undisclosed income revealed out of the savings made after November 10, 2016. These measures will be implemented after amending the relevant sections of the Income Tax Act 1961.

Along with this cess, tax, surcharge and penalties on undisclosed income or black income stored in banks after the demonetization day is a major action taken by the Government to tackle the black money relvealed from demonetisation.

Objective of the amendment is that the Government should get additional revenue for undertaking activities for the welfare of the poor but also the remaining part of the declared income legitimately comes into the formal economy. For this, a tax and penalty will be imposed on undisclosed income (50% on those who discloses and 85% for those who don’t disclose and caught) and besides a portion of the remaining money should be used for development purposes.

For tackling the black money after demonetisation, ‘Taxation and Investment Regime for Pradhan Mantri Garib Kalyan Yojana, 2016’ (PMGKY) is proposed in the Bill. It has two components -one for disclosing persons and the other one for non-disclosing and caught with undisclosed income. Following is composition of the bill regarding the treatment of undisclosed income.

(A) Window scheme for declarants of undisclosed income

First is a 50% tax rate on those who declare undisclosed income. This 50% comprises of:
(a) 30 percent tax
(b) 33% cess called ‘Pradhan Mantri Garib Kalyan Cess’ (33% of 30%; this means a total of 10%).
(c) 10 percent penalty
Total tax rate is (30 + 10+ 10) = 50%.
Besides, the declarants must put the 25% of their disclosed amount in a social security scheme. This will be locked for four years. For channelizing this 25%, a deposit scheme is to be notified by the RBI under the ‘Pradhan Mantri Garib Kalyan Deposit Scheme, 2016’.
The deposit amount is proposed to be utilised for the schemes of irrigation, housing, toilets, infrastructure, primary education, primary health, livelihood, etc. For this, the existing Pradhan Mantri Garib Kalyan Yojana will be modified as an antipoverty and development programme.

(B) Higher tax rate for under-reporting/misreporting of income

A steep tax rate of 60% (comprising basic 30% rate, cess and surcharge) plus 15% from surcharge (25% surcharge means 25% of 60). The tax rate thus becomes 75%. The assessing officer can impose 10% penalty and the total tax rate becomes 85%.
Pradhan Mantri Garib Kalyan Yojana was launched in April 2015, aims to improve the living standard of the poor people especially those who are BPL through concrete government initiatives. The Programme’s working was to engage poor people through workshops where poor can attend.

The old format may not be followed under the PMGKY Cess. More actions and programmes can be expected as the scheme gets sufficient funding through the cess.