Analysis of IDS scheme by CA Mahesh Bansal

Government has introduced the IDS scheme recently. This scheme will allow people to deposit their money in bank account and pay a fixed percentage as tax. Some people are thinking why the government has introduced the new tax rate of 50% on black money deposited in the form of old notes when the entire value of those currency notes would have come to the government if not deposited by those who hold them.

Let me explain in detail the basic reason for IDS scheme.If this tax structure on black money were not brought, some smart black money hoarders would have been able to launder their black money by paying just 30% normal tax and disclosing it in their next return because under the existing section 270A, the department can not impose penalty when income is disclosed in ITR. Even, if the department would impose a penalty, the assessee would have won through the litigation route. In this manner, the persons who disclosed their black money under IDS scheme 2016 would have been at a disadvantageous position when compared to those who decided not to disclose under that scheme.

So, to bring a parity and make those who did not avail IDS scheme 2016 to pay higher (50%) now, this tax rate has been introduced which is quite fair. If you take into consideration the 25% to be deposited in tax free govt bonds and assume an inflation rate of 5.5% annually, the Rs. 25 will be left worth Rs. 20 after 4 years. So, effectively, this tax rate on self disclosed black money has reached at 55% compared to 45% under IDS 2016. If this rate were kept higher than 55%, people would chose not to deposit it in banks and probably the old notes would continue to be a medium for black money transactions in future. So, in my view the newly introduced tax rates are quite fair.