After providing a one-time opportunity to the assesses to come clean, under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (“Black Money Act”) notified on 26th May, 2015, the Government of India had announced the Income Declaration Scheme, 2016 (“the Scheme”) in the Finance Bill, 2016. The Scheme was announced with the intention of attracting taxpayers to disclose their unaccounted domestic / Indian income and assets.
Since the declaration of the Scheme in the Finance Bill, 2016, the following have been issued by the CBDT in reference to the Scheme:
- Press Release dated 14th May, 2016, notifying date of opening of the Scheme
- Income Declaration Rules, 2016 dated 19th May, 2016
- Circular No. 16 of 2016 dated 20th May, 2016, giving “Explanatory Notes on Provisions of the Income Declaration Scheme, 2016 as provided in Chapter IX of the Finance Act, 2016”
- Circular No.17 of 2016 dated 20th May, 2016, giving “Clarifications on the Income Declaration Scheme, 2016”.
This article will provide an overview of the Income Declaration Scheme, 2016.
- A declaration under the Scheme may be made in respect of any income or income in the form of investment in any asset located in India and acquired from income chargeable to tax for which the declarant had,
- either failed to furnish a return under section 139 of the Income-tax Act, or
- failed to disclose such income in a return furnished before the date of commencement of the Scheme, or
- such income had escaped assessment by reason of the omission or failure on the part of such person to make a return or to disclose fully and truly all material facts necessary for the assessment or otherwise.
- The scheme shall apply to undisclosed income whether in the form of investment in assets or otherwise, pertaining to Financial Year 2015-16 or earlier.
- Where the declaration is in the form of investment in assets, the Fair Market Value of such asset as on 1st June, 2016 shall be deemed to be the undisclosed income under the Scheme.
- No deduction in respect of any expenditure or allowance shall be allowed against the income in respect of which declaration under this Scheme.
Rate of tax payable
Under the Scheme, such income as declared by the eligible persons, would be taxed at the rate of 30% plus a ‘Krishi Kalyan Cess’ of 25% on the taxes payable and a penalty at the rate of 25% of the taxes payable, thereby totalling to 45% of the income declared under the Scheme.
Term of the Scheme
- The scheme shall remain in force for a period of 4 months from 1st June, 2016 to 30th September, 2016 for filing of declarations.
- Payments towards taxes, surcharge & penalty must be made latest by 30th November, 2016.
Manner of Declaration
- Declaration shall be filed in Form-1 either online on the e-filing website of the Income-tax Department using the digital signature of the declarant or through electronic verification code or in paper form before the jurisdictional Principal Commissioner/ Commissioner.
- The jurisdictional Principal Commissioner or Commissioner will issue an acknowledgment in Form-2 to the declarant within 15 days from the end of the month in which the declaration under Form-1 is made.
- The declarant shall furnish proof of payment made in respect of tax, surcharge and penalty to the jurisdictional Principal Commissioner or Commissioner in Form-3 after which the said authority shall issue a certificate in Form-4 of the accepted declaration within 15 days of submission of proof of payment by the declarant.
- An application under this Scheme can be done only once by an assesse.
Declaration not eligible in certain cases
No declaration can be made under the Scheme in the following cases:
- where a notice under section 142/ 143(2)/ 148/ 153A/ 153C of the Income-tax Act has been issued and the proceeding is pending before the Assessing Officer. Clarification: a person will not be eligible if the above notice has been served upon the person on or before 31st May, 2016; or
- where in a previous year any of the following events have taken place and the time for issuance of a notice under section 143(2)/ 153A/ 153C for the relevant assessment year has not expired.
- a search has been conducted under section 132 or
- requisition has been made under section 132A or
- a survey has been carried out under section 133A
- cases covered under the Black Money Act; or
- by a person in respect of whom proceedings for prosecution of any offence punishable under Chapter IX (offences relating to public servants) or Chapter XVII (offences against property) of the Indian Penal Code or under the Unlawful Activities (Prevention) Act or the Narcotic Drugs and Psychotropic Substances Act or the Prevention of Corruption Act are pending; or
- by a person notified under section 3 of the Special Court (Trial of Offences Relating to Transactions in Securities) Act or a person in respect of whom an order of detention has been made under the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act.
Declaration invalid in certain cases
In the following situations, a declaration shall be void and shall be deemed never to have been made:
- If the declarant fails to pay the entire amount of tax, surcharge and penalty by 30.11.2016, or
- Where the declaration has been made by misrepresentation or suppression of facts or information.
Where the declaration is held to be void for any of the above reasons, any tax, surcharge or penalty paid in pursuance of the declaration shall not be refundable under any circumstances.
Benefits under the Scheme
- Tax Benefit
|Particulars||Declaration under the Scheme||Provisions of the Income-tax Act, 1961 and rules|
|Tax rate||30% (plus surcharge in the nature of Krishi Kalyan Cess of 7.5%)||30% (plus applicable surcharge and education cess of 3%)|
|Interest||Not applicable||1% for every month or part of the month starting from the year in which income was earned|
|Penalty||25% of the tax (i.e. 7.5% of the value of income / assets declared)||Can range from 100% to 300% of the tax amount|
|Total tax payable||45% of the income / assets declared||120% (i.e. tax plus penalty) plus applicable interest|
- The amount of undisclosed income declared shall not be included in the total income of the declarant under the Income-tax Act for any assessment year;
- The contents of the declaration shall not be admissible in evidence against the declarant in any penalty or prosecution proceedings under the Income-tax Act and the Wealth Tax Act;
- Immunity from the Benami Transactions (Prohibition) Act, 1988 is provided, subject to transfer of asset to actual owner within the period specified in the Rules;
- The value of asset declared in the declaration shall not be chargeable to Wealth-tax for any assessment year or years; and
- Non declaration of undisclosed income under the Scheme, will render such undisclosed income liable to tax in the previous year in which it is detected by the Income tax Department. Other penal consequences will also follow accordingly.