Playing one-up to curb creative Tax planning in the form of availing the ‘loop-hole’ under the existing Tax laws which prescribe a tax rate of 30% [plus surcharge & cess] for unexplained cash and investments under Section 115BBE, the Government has moved to double the rate under the section to 60%. Topping it up further with a 25% surcharge, the effective tax rate for cash and investments from unexplained sources becomes a prohibitive 75%. A further penalty of 10% would take the effective cash outgo to 85%.

The above measure is  also aimed at encouraging cash hoarders to avail immunity under a New scheme to be styled  Pradhan Mantri Garib Kalyan Yojana (Translation – Prime  Minister’s Scheme for Welfare of the poor’ ) . Under the scheme, the combined Tax+Surcharge+Penalty add-up to 50% of unexplained cash. A further 25% gets locked-up in a zero-coupon bond for a four year period, leaving 25% on the table for the depositor who shows up with unexplained cash.

The Scheme offers an alternative to ‘unofficial’ cash conversion which are reported to be widely prevalent at discounts of anywhere between 25-50% of face value of Old currency.