Pay Tax & Penalty at 50% on Unaccounted Cash Deposits

Banks

The Modi government has finally come out with a taxation structure by announcing 30% tax, 33% surcharge on tax and 10% penalty on the unaccounted wealth, bringing an end to a series of speculations arising over the issue. The tax and penalty combined together account for upto 50% of the unaccounted wealth of the depositors.

At the very start, the government had announced a penalty of up to 200% on such deposits. A sudden change in the proposed move is attributable to confusions regarding the government being actually able to implement it. A little later, the union cabinet was believed to have given a nod to the amendments to the income tax laws with respect to the tax implication on the growing deposits in the banks due to the cancellation of Rs. 500 and Rs. 1,000 notes as announced by PM Modi on Nov 8, 2016. Let's check out how the new tax legislation will work out in the case of black money hoarders.

How impactful will Paying Tax @50% of Unaccounted Wealth be?

How will the finalization of tax at 50% on unaccounted wealth impact people? You can understand the same by taking a look at two tables stated below.

Deposit Amount Tax+Penalty
Rs. 5 LacsFirst Rs. 2.5 Lakhs- NIL

10% Tax on Next Rs. 2.5 Lakhs= Rs. 25,000

Tax= Rs. 25,000

Surcharge @33% on Rs. 25,000= Rs. 8,250

Penalty at 10% on Rs. 2.5 Lakhs= Rs. 25,000

Total Tax Liability= Rs. 58,250
Rs. 10 LacsFirst Rs. 2.5 Lakhs- NIL

Tax @ 10% on Rs. 2.5 Lakhs= Rs. 25,000

Tax @ 20% on Rs. 5 Lakhs= Rs. 1,00,000

Tax= Rs. 1,25,000

Surcharge @ 33% on Rs. 1,25,000= Rs. 41,250

Penalty at 10% on Rs. 7.5 Lakhs= Rs. 75,000

Total Tax Liability= Rs. 2,41,250
Rs. 20 LacsFirst Rs. 2.5 Lakhs- NIL

Tax @ 10% on Rs. 2.5 Lakhs= Rs. 25,000

Tax @ 20% on Rs. 5 Lakhs= Rs. 1,00,000

Tax @ 30% on Rs. 10 Lakhs= Rs. 3,00,000

Tax= Rs. 4,25,000

Surcharge @33% on Rs. 4,25,000= Rs. 1,40,250

Penalty at 10% on Rs. 17.5 lakhs= Rs, 1,75,000

Total Tax Liability= Rs. 7,40,250
Rs. 30 LacsFirst Rs. 2.5 Lakhs- NIL

Tax @ 10% on Rs. 2.5 Lakhs= Rs. 25,000

Tax @ 20% on Rs. 5 Lakhs= Rs. 1,00,000

Tax @30% on Rs. 20 Lakhs= Rs. 6,00,000

Tax= Rs. 7,25,000

Surcharge @33% on Rs. 7,25,000= Rs. 2,39,250

Penalty at 10% on Rs. 27.5 Lakhs= Rs. 2,75,000

Total Tax Liability= Rs. 12,39,250
Rs. 40 LacsFirst Rs. 2.5 Lakhs- NIL

Tax @ 10% on Rs. 2.5 Lakhs= Rs. 25,000

Tax @ 20% on Rs. 5 Lakhs= Rs. 1,00,000

Tax @30% on Rs. 30 Lakhs= Rs. 9,00,000

Tax= Rs. 10,25,000

Surcharge @33% on Rs. 10,25,000= Rs. 3,38,250

Penalty at 10% on Rs. 37.5 lakhs= Rs. 3,75,000

Total Tax Liability= Rs. 17,38,250
Rs. 50 LacsFirst Rs. 2.5 Lakhs- NIL

Tax @ 10% on Rs. 2.5 Lakhs= Rs. 25,000

Tax @ 20% on Rs. 5 Lakhs= Rs. 1,00,000

Tax @ 30% on Rs. 40 Lakhs= Rs. 12,00,000

Tax=Rs. 13,25,000

Surcharge @33% on Rs. 13,25,000= Rs. 4,37,250

Penalty at 10% on Rs. 47.5 lakhs= Rs. 4,75,000

Total Tax Liability= Rs. 22,37,250
Rs. 100 LacsFirst Rs. 2.5 Lakhs- NIL

Tax @ 10% on Rs. 2.5 Lakhs= Rs. 25,000

Tax @ 20% on Rs. 5 Lakhs= Rs. 1,00,000

Tax @ 30% on Rs. 90 Lakhs= Rs. 27,00,000

Tax=Rs. 28,25,000

Surcharge @33% on Rs. 28,25,000= Rs. 9,32,250

Penalty at 10% on Rs. 97.5 lakhs= Rs. 9,75,000

Total Tax Liability= Rs. 47,32,250
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Deposit Amount Tax+Penalty
Rs. 2 Lacs-2.5 LacsTax-NIL
Rs. 5 LacsFirst 2.5 Lacs-No Tax

Tax @ 10% on Next Rs. 2.5 Lacs-25,000

200% Penalty on Rs. 25,000= Rs. 50,000

Total Tax Liability= Rs. 75,000
Rs. 10 LacsFirst 2.5 Lacs-No Tax

Tax @ 10% on Rs. 2.5 Lacs= Rs. 25,000

Tax @ 20% on Rs. 5 Lacs= Rs. 1,00,000

Tax= Rs. 1,25,000

200% Penalty on Rs. 1,25,000= Rs. 2,50,000

Total Tax Liability= Rs. 3,75,000
Rs. 20 LacsFirst 2.5 Lacs-No Tax

Tax @ 10% on Rs. 2.5 Lacs= Rs. 25,000

Tax @ 20% on Rs. 5 Lacs= Rs. 1,00,000

Tax @ 30% on Rs. 10 Lacs= Rs. 3,00,000

Tax= Rs 4,25,000

200% Penalty on Rs. 4,25,000= Rs. 8,50,000

Total Tax Liability= Rs. 12,75,000
Rs. 30 LacsFirst 2.5 Lacs-No Tax

Tax @ 10% on Rs. 2.5 Lacs= Rs. 25,000

Tax @ 20% on Rs. 5 Lacs= Rs. 1,00,000

Tax @30% on Rs. 20 Lacs= Rs. 6,00,000

Tax= Rs. 7,25,000

200% Penalty on Rs. 7,25,000= Rs. 14,50,000

Total Tax Liability= Rs. 21,75,000
Rs. 40 LacsFirst 2.5 Lacs-No Tax

Tax @ 10% on Rs. 2.5 Lacs= Rs. 25,000

Tax @ 20% on Rs. 5 Lacs= Rs. 1,00,000

Tax @30% on Rs. 30 Lacs= Rs. 9,00,000

Tax= Rs. 10,25,000

200% Penalty on Rs. 10,25,000= Rs. 20,50,000

Total Tax Liability= Rs. 30,75,000
Rs. 50 LacsFirst 2.5 Lacs-No Tax

Tax @ 10% on Rs. 2.5 Lacs= Rs. 25,000

Tax @ 20% on Rs. 5 Lacs= Rs. 1,00,000

Tax @ 30% on Rs. 40 Lacs= Rs. 12,00,000

Tax=Rs. 13,25,000

200% Penalty on Rs. 13,25,000= Rs. 26,50,000

Total Tax Liability= Rs. 39,75,000
Rs. 100 LacsFirst 2.5 Lacs-No Tax

Tax @ 10% on Rs. 2.5 Lacs= Rs. 25,000

Tax @ 20% on Rs. 5 Lacs= Rs. 1,00,000

Tax @ 30% on Rs. 90 Lacs= Rs. 27,00,000

Tax=Rs. 28,25,000

200% Penalty on Rs. 28,25,000= Rs. 56,50,000

Total Tax Liability= Rs. 84,75,000

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From the tables, you can find a huge difference in tax liability as per two announcements made with respect to the demonetization of higher currency notes of Rs. 500 and Rs. 1,000 to curb black money in India.

Interesting Facts About Taxation in India

  1. Maharashtra and Delhi account for 53% of overall tax collection across India.
  2. Delhi, despite not being given the full state status, pumps in more income tax than the combination of Haryana, Uttar Pradesh, Gujarat and Punjab.
  3. 1.6 crore individuals file ITR but do not pay tax.
  4. Only 1% of India's population pays tax.
  5. Over 5,000 pay tax more than Rs. 1 crore.
  6. 85% of tax payers pay below Rs. 1,50,000 in a year.
  7. Direct and indirect taxes account for 51% and 36%, respectively, of the overall tax collection in India.
  8. Direct tax collection stood at Rs. 7,42,295, while indirect tax grossed Rs. 7,11,885 in FY 2015-16.