Open and shut case: New income-tax rules offer one-step resolution

Flat 60% tax on undisclosed income to reduce litigation, says CBDT chief

The new rules for search and seizure by the income-tax (I-T) department, announced in the Union Budget for 2024-25 on Tuesday, have the potential to reduce litigation and enhance compliance by ensuring resolution in one go, Central Board of Direct Taxes (CBDT) Chairman Ravi Agrawal has said.

  

A case will be settled if the taxpayer accepts the findings of the department and agrees to pay “60 per cent tax on the undisclosed income”, he said. 

These rules will come into effect from September 1. 
 

“The proceedings following the search take a long time. However, under the proposed scheme, if the taxpayer accepts the search findings and pays 60 per cent tax on the undisclosed income, the case could end in just one proceeding,” Agrawal told Business Standard in an interview. “No other penalty or interest will be levied (on the taxpayer),” he added. 
 

According to experts, the new rules are intended to encourage the revelation of undisclosed income and may reduce litigation by at least 20 per cent.
 

The scheme, called block assessment, will be applicable to undisclosed income found up to six previous years from the date of conclusion of search proceedings. 

“Typically, after an I-T search, an officer assesses the undisclosed income, evidence is analysed, the officer sends multiple notices, and then there are multiple proceedings for different years. All this takes a substantial time (12 months to be precise). Now, for each block (of six years), there will be one proceeding if the taxpayer accepts the findings of the I-T officer,” the CBDT chief said. 

“If the assessee offers undisclosed income in the return furnished in pursuance of search and pays the tax along with the return, the matter gets concluded there. However, if (any other) income is disclosed beyond this, then a 50 per cent penalty could be levied on the additional amount,” he said.

Agrawal said existing search provisions were leading to multiple proceedings and multiple notices for different years. “Such disputes or proceedings stretched for a longer period of time... Block search rationalises the proceedings to a greater extent,” he said. 

The main objectives for the introduction of this scheme are early finalisation of search assessments, coordinated investigation, and reduction in multiplicity of proceedings. 

The total income relating to the block period shall be charged to tax, at the rate specified in Section 113 (deals with tax rates) -- as income of the block period irrespective of the previous year or years to which such income relates. 

The Finance Bill proposes to substitute the new chapter namely “Special procedure for assessment of search cases”. 

Explaining the rationale, the Bill underlined that searches conducted by the I-T department are important means for unearthing black money. However, it has been gathered from the field formations that there are multiple problems that are arising under the present scheme of search assessment under section 148 of the Act. 

The absence of any legal requirement for consolidated assessments in search cases has led to a situation where every year only the time-barring year is reopened in the case of the searched assessee. This results in staggered search assessments for the same search and consequently, the searched assessee may be engaged in the search assessment process for almost up to 10 years, the Bill highlighted. 

According to the definition, “undisclosed income” includes any money, bullion, jewellery or other valuable article or thing or any expenditure or any income based on any entry in the books of account or other documents or transactions, which has not been or would not have been disclosed for the purposes of this Act, which is found to be incorrect, in respect of the block period. 

The new rules make search cases cost-effective, efficient and meaningful, the Bill stated. 

New rules

> The scheme offers a single proceeding applicable to undisclosed income found up to six years prior to the conclusion of 

search proceedings
 

> If the searched entity accepts the findings and pays a 60% tax on undisclosed income, there will be no penalty or interest

> Currently, undisclosed income is taxed at 60% with additional interest and penalties, and there is no provision for a single 

proceeding covering multiple  years
 

> The new rules will take effect on Sept 1

Tax net widens for luxury buys
 

On a separate proposal imposing 1 per cent tax collected at source (TCS) on luxury goods above Rs 10 lakh, the CBDT chief said it would help the tax department in tracking the expenses of taxp­ayers. “Once you collect 1 per cent TCS, you are also keeping a track of the expen­d­i­ture or investment. If the person is a regular taxpayer, then they claim it. This implies that the person has disclosed or taken care of buying of luxury goods. if not, then we have this information that tax has not been paid on the luxu­ry item bought, and we would like to pursue it. This will give us an opportunity to analyse data and help raise some revenue,” he said. BS Reporter