There is a case for the government to revisit the steep tax and penalty on undisclosed income, which was sharply tightened in the aftermath of demonetisation. What was conceived as a deterrent for a specific, extraordinary period has since hardened into a permanent burden.
The effective income tax payable under section 115BBE of the Income Tax Act is 78 per cent (including surcharge and cess) plus a penalty of 10 per cent in case any addition is made by the tax officer by not accepting loans or share capital or any other amount credited in the books of account of a taxpayer or making an addition for alleged unexplained investments.
The rate was initially 30 per cent and was raised sharply post-demonetisation to make it significantly costlier to bring unaccounted money into the system, and was understood to be for the limited purpose of that exceptional event, applicable only to the financial year 2016-17 (assessment year 2017-18). Nearly a decade later, the taxpayers continue to be unnecessarily burdened, and the budget may help restore balance by bringing the rate back to the original 30 per cent.
Jain is a tax advocate