CA Amresh Vashisht, Meerut

CA AMRESH VASHISHTWhen, the Income Disclosure scheme,2016 (IDS, 2016) under the domain of Ministry of Finance began it swiftly became clear that the government is in serious business of tackling the black money within the boundaries of sovereign INDIA. But in spite of the best efforts to governance appeal followed by crores of notices issued under various sections with a clear note to avail IDS is likely to be unseated from the popular scheme in comparison of the earlier schemes. The scheme was voluntary disclosure of untaxed income by the assessees but its unpopularity has forced department to take all kind of surveys & counseling to declare the undisclosed income. Notices for the information received under annual information Reports along with brochure of the scheme for the F.Y 2009-10 to 2015-16 have been issued in plenty. Now, almost all the assesses have received notices from the AOs without mentioning any corresponding section but inquiring about the sale, purchase etc followed by the note on the IDS.

ids-fns-2The Prime Minister has talked about the scheme in Mann ki Baat. He also took up the issue aggressively in traders meeting, news channel interviews and threatened the assessee for the consequences after the 30th September. The Government shall be in embarrassment if the final figures under IDS may not match to their expectations. The Department shall be exhausted as all the means within their powers were utilized with force if the final figures may not reach up to their outlook. The professionals shall have a last laugh as they are richer by the declarations filed by the declarants and shall be richer with the compliance of the crores of noticed issued to make it success. They shall be happy to challenge them in the near future.

THE INCOME DECLARATION SCHEME 2016.

The Income Declaration Scheme, 2016 incorporated as Chapter IX of the Finance Bill 2016 and came into force on the 1st of June 2016 after the Finance Act 2016 received the Presidential assent. The scheme provided an opportunity to all persons (Individuals /firms /company / association) who have not declared income correctly in earlier years to come forward and declare such undisclosed income(s). 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 totaling to 45% of the income declared under the scheme. The scheme shall remain in force for a period of 4 months from 1stJune, 2016 to 30th September 2016 for filing of declarations and payments time schedule have been revised taking into consideration the practical difficulties of the stakeholders.

(i) A minimum amount of 25% of the tax, SC & penalty to be paid by 30.11.2016

(ii) a further amount of 25%of the tax, SC & penalty to be paid by 31.3.2017 and

(iii) the balance amount to be paid on or before 30.9.2017.

Declarations can be filed on-line or manually with the jurisdictional Pr. Commissioners of Income-tax across the country. However, foreign assets or income to which the Black Money Act 2015 applies are not eligible for declaration under this scheme. The circumstances in which the Scheme shall not apply or where a person is held to be ineligible are specified in section 196 (Chapter IX) of the Finance Act,2016 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.

SIX FAQ’S SO FAR

The department has come out with six Frequently Asked Questions (FAQs) so far. The first of the Tax Payer Education series of FAQs specifying details of the scheme and clarifying eligibility available was released on 20th May 2016 before the opening of the scheme. The first FAQ’s were aimed at explaining the various provisions of the Scheme with respect to eligibility, nature of assets, periods of availability, kinds of immunities available under the scheme and persons excluded from its benefits. The circumstances in which the scheme shall not apply have also been clarified. On 30th June 2016 the department issued further clarifications, the advantage of declaring undisclosed income, assets under the Scheme vis-ŕ-vis declaration of the same as current income for Assessment Year 2017-18 was also briefed. In this regard it has been clarified that declaration of undisclosed income and assets as current income for Assessment Year 2017-18 would attract prosecution for false verification and also cannot explain acquisition of undisclosed assets in the past years. On 14th July 2016, the department issued another FAQs on the further issues and clarifying the first three set of FAQ issued. On 18th August 2016, the fifth FAQ was released clarifying the issues of Immovable property after amending the rules to provide that where acquisition of an immovable property is evidenced by a registered deed, an option shall be available with the declaring to declare the fair market value of such property by applying the cost inflation index to stamp duty value of the property. The last clarification issued by the department mentioned of no possibility of extension of scheme.

DECLARATION OF IMMOVABLE PROPERTY UNDER IDS

The declaration about immovable property attracted many clarification. Orignally , that may lead to complications in calculation of capital gain at the time of sale of asset in case immovable property was partly funded from undisclosed income now declared under the Scheme. So it passed through many tests and also secured an option to declare the immovable asset.

A. The assets declared under the Scheme are to be valued at cost of acquisition or at fair market price as on 1.6.2016 as determined by the registered valuer, whichever is higher. However, an option for valuation of registered immovable property on the basis of stamp duty value of acquisition adjusted with the Cost Inflation Index has also been provided.

B. For this the rules have been amended to provide that where acquisition of an immovable property is evidenced by a registered deed, an option shall be available with the declarant to declare the fair market value of such property by applying the cost inflation index to stamp duty value of the property.

C. It has been clarified that the answer number 4 of the said fifth set of FAQ shall apply to only immovable property. The clarification was issued considering the fact that investment in an immovable property may be funded partially from undisclosed and partially from disclosed sources. In such cases, if the property is sold in near future, gains from part of the property may be long term and the balance may be short term. This may cause undue hardship to the declarant. Therefore, the clarification issued relates only for determination of holding period of immovable property.

D. In view of the above, it is again clarified that answer number 4 of the said FAQ shall only be applicable for determining holding period of an immovable property for which the date of acquisition is evidenced by a deed registered with any authority of the State Government. However, for assets other than immovable property declared under the scheme, the holding period shall start from 01.06.2016 for purpose of computation of capital gains.

E. The valuation report obtained by the declarant from a registered valuer shall not be questioned by the department. However, valuer’s accountability will remain.

F. The period of holding of declared registered immovable assets shall be taken on the basis of the actual date of registration.

G. The FAQ carried a situation ,which is illustrated as below:

Suppose Mr. ‘A’ purchased a house on 01.10.2011 for Rs.10 lakh and declares fair market value of the same as on 01.06.2016 under the Scheme at Rs.20 lakh. If the said house is sold on 01.10.2017 for Rs.30 lakh, the holding period for the house for purposes of computation of capital gain shall be six years i.e. from 01.10.2011 to 01.10.2017. As the holding period exceeds three years, the gains arising from such transfer shall be treated as long term capital gain. Further, the indexation benefit in this case shall be available on Rs.20 lakh from 01.06.2016 to 01.10.2017.

H. Following information of every immovable property required to fill in the form 1.

( Attach Valuation Report or Indexed Value if backed by registered deed)

i. Nature of the Property ( Land/ Building/Flat) ……………………………………

ii. Address of the property ……………………………………

iii. Name (s) under which held ……………………………………

iv. Date of acquisition ……………………………………

v. Cost of acquisition as per rule 3 (1) (d) (i) ……………………………………

vi. Value as Valued by registered valuer ……………………………………

vii. Value as per provision 3 (1) (d) (i) ……………………………………

viii. Fair Market Value/ Indexed Value ……………………………………

DECLARATION OF JEWELLERY & ARTISTIC WORK UNDER IDS

The tax department has issued guidelines to evaluate FMV. For instance, for assets such as bullion, jewellery or precious stones, between the cost of acquisition and the price it will fetch if sold in the open market on the valuation date (i.e., 1 June 2016), the higher amount has to be considered for tax purpose. The same applies to other assets such as archaeological collections, drawings, or any work of art.

Following information of every jewelry & artistic work required filing in the form 1.

A. Jewelry (Attach valuation report as at 01.06.2016)

(a) Gold

(I)Purity ________, Weight _________, Value ____________

(II)Purity ________, Weight _________, Value ____________

(b) Diamond (1 carat or more)

(I)Carat ________, Cut _______, Colour ______, Clarity_______, Value ________

(II)Carat ________, Cut _______, Colour ______, Clarity_______, Value ________

(c) Diamond (less than 1 carat) and other precious stones-  Value __________

(d) Other precious metals – Value__________

B. Artistic work (Attach valuation report as at 01.06.2016)

(i) Nature of artistic work __________________

(ii) Name(s) under which held __________________

(iii) Date of acquisition ________________

(iv) Cost of acquisition __________________

(v)Value of artistic work as estimated by the registered valuer

(vi) Fair Market value as per Rule 3 __________________

DECLARATION OF SHARES & SECURITIES UNDER IDS

In case of financial assets such as shares and securities, the process is slightly different. The asset’s FMV will be higher of these two costs—cost of acquisition or the average of the lowest and highest price quoted on any established securities market on the valuation date.

Following information of every Shares and Securities required filling in the form 1.

(a)Quoted shares and securities [Rule 3(1)(c)(I)]

(i)Description of security/share

(A) Name of issuer __________________

(B) Number of securities/shares __________________

(C) Type of security/share __________________

(ii) Recognised exchange where quoted __________________

(iii) Name(s) under which held __________________

(iv) Cost of acquisition __________________

(v) Date(s) of acquisition __________________

(vi) Value as determined under Rule 3(1)(c)(I)(ii) __________________

(vii) Fair Market value as per Rule 3 __________________

(b)Unquoted equity share [Rule 3(1)(c)(II)] (attach valuation report)

(i)Description of share

(A) Name of issuer __________________

(B) Number of shares __________________

(C) Type of share __________________

(ii) Name(s) under which held __________________

(iii) Cost of acquisition __________________

(iv) Date(s) of acquisition __________________

(v) Value as determined under Rule 3(1)(c)(II)(ii) __________________

(vi) Fair Market value as per Rule 3 __________________

(c)Unquoted shares and securities other than equity shares in a company [Rule 3(1)(c)(III)] (attach valuation report)

(i)Description of share/security

(A) Name of issuer __________________

(B) Number of securities/shares __________________

(C) Type of security/share __________________

(ii) Name(s) under which held __________________

(iii) Cost of acquisition __________________

(iv) Date(s) of acquisition __________________

(v) Value as determined under Rule 3(1)(c)(III)(ii) __________________

(vi) Fair Market value as per Rule 3 __________________

DECLARATION OF OTHER ASSETS & BALANCE SHEET ITEMS UNDER IDS

A. Where loans, creditors, advances received, share capital, payables etc. are disclosed in the audited balance sheet but are fictitious in nature and cannot be directly linked to acquisition of a particular asset, then such fictitious liabilities can be disclosed under the Scheme as such without linking the same with the investment in any specific asset.

B. The income declared under the Scheme for an earlier assessment year can be taken into account to explain the related transactions of the subsequent assessment years in assessment proceedings pending before the Assessing Officer provided there is a nexus between the two.

C. No adverse action shall be taken against the declarant by FIU or the income-tax department solely on the basis of cash deposits made in banks consequent to the declaration made under the Scheme.

D. The period of holding of assets declared under the Scheme shall be taken on the basis of the actual date of acquisition of such asset and not from 1.6.2016 as clarified earlier.

E. The amount of fictitious liabilities recorded in audited balance sheet and not linked to acquisition of an asset can be disclosed under the Scheme as such

F. Any other asset

(i) Description of asset __________________

(ii) Name(s) under which held __________________

(iii) Cost of acquisition/ investment __________________

(iv) Date of acquisition/ investment __________________

(v) Value as determined under Rule 3(1)(g)(II) __________________

(vi) Fair market value as per Rule 3 __________________

DEPARTMENT ASSURANCES UNDER IDS

The following major assurances have been given by the department through Rules and FAQs to provide stability and certainty to the Scheme.

A. The information in respect of a valid declaration is confidential and shall neither be shared with any law enforcement agency nor shall be enquired into by the Income-tax Department.

B. Credit for unclaimed TDS made on declared income shall be allowed.

C. Neither any capital gains tax nor any TDS shall be levied on transfer of declared benami property from benamidar to the declarant without consideration.

D. No adverse action shall be taken by FIU or the income-tax department solely on the basis of the information regarding cash deposit made consequent to the declaration under the Scheme.

E. Further, vide Circular No. 31 dated 30.8.2016 an option has been provided to the declarants to file the declaration under the Scheme electronically under digital signature with the Commissioner of Income tax, Centralized Processing Centre, Bengaluru [CIT(CPC)]. In case the declarant exercises the said option the declaration shall not be shared with the jurisdictional Principal Commissioner/Commissioner under the Income-tax Act.

F. No enquiry/investigation shall be made in respect of the undisclosed income and assets declared under the Scheme even if the evidence of same is found subsequently during course of search or survey proceedings (circular No.32 dated 01.09.2016).

G. In case of part payment, the entire declaration made under the Scheme shall be invalid. The declaration under the Scheme shall be valid only when the complete payment of tax, surcharge and penalty is made on or before the dates given

H. Revised declaration can be filed on or before the date of closure of the Scheme provided the undisclosed income in the revised declaration is not less than the undisclosed income declared in the declaration already filed.

I. The cases of the declarant shall not be selected for scrutiny under the CASS only on the ground that there is increase in capital in the balance sheet as a result of the declaration made under the Scheme.

FORMS UNDER IDS

As per Income Declaration Scheme, 2016, the declaration of undisclosed income is to be filed using Form for Income Disclosure –

A. Form 1. As per Notification No. 60/2016, the other Forms accompanying Form for Income Disclosure -Form 1 are Form 2, Form 3 and Form 4.

B. Form 2 is an acknowledgement issued to the declarant by the jurisdictional Principal Commissioner or Commissioner.

C. Form 3 as per Notification No. 70/2016 shall be furnished by the declarant to the jurisdictional Principal Commissioner or Commissioner for the proof of payment of tax, surcharge and penalty made after receiving

D. Form-2.Form 4 is a certificate granted by the jurisdictional Principal Commissioner or Commissioner after submission of Form 3.

E. In e- Filing portal, Form for Income Disclosure -Form 1 is available for e-Filing.

F. Declaration to be signed by

  • In the case of Individual- Individual where individual is absent from India, person authorized by him; where the individual is mentally incapacitated, his guardian or other person competent to act on his behalf
  • In the case of HUF-Karta , where the karta is absent from India or is mentally incapacitated from attending to his affairs, by any other adult member of the HUF
  • In the case of Company– Managing Director; where for any unavoidable reason the managing director is not able to sign or there is no managing director, by any director
  • In the case of Firm – Managing partner; where for any unavoidable reason the managing partner is not able to sign the declaration, or where there is no managing partner, by any partner, not being a minor
  • In the case of any other association– Any member of the association or the principal officer
  • In the case of any other person– That person or by some other person competent to act on his behalf.

DO & DONTS UNDER THE IDS

A. The declarant has to declare that the information given in the declaration is correct and complete to the best of his knowledge and belief.

B. In addition to declarant income in respect of the assessment year(s)for which the declaration is made, income of other persons in respect of which the assessee was chargeable to tax and income accruing or arising from the assets held by him through any other person for which the declarant had failed to furnish a return under section 139 of the Income-tax Act, 1961/which the declarant had failed to disclose in a return of income furnished by him before the commencement of the Scheme/which has otherwise escaped assessment, has also been disclosed in this declaration.

C. The income of any other person in respect of which the declarant was not chargeable to tax has not been included in this declaration;

D. The provisions of clause (a) of section 196 of the Finance Act, 2016 in respect of Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 are not applicable to declarant.

E. The provision clause (b) of section 196 of the Finance Act, 2016 in respect of Indian Penal Code, the Narcotic Drugs and Psychotropic Substances Act, 1985, the Unlawful Activities (Prevention) Act, 1967, the Prevention of Corruption Act, 1988 are not applicable to the declarant.

F. The undersigned has not been notified under section 3 of the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992.

G. The income declared is not chargeable to tax under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.

H. The income declared is not chargeable to tax under the Income-tax Act for any previous year relevant to assessment year,-

(i) where a notice under section 142 or sub-section (2) of section 143 or section 148 or section 153A or section 153C of the Income-tax Act has been received in respect of such assessment year and the proceeding is pending before the Assessing Officer;

(ii) where 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 of the Income-tax Act in a previous year and a notice under sub-section (2) of section 143 of the said Act for the assessment year relevant to such previous year or a notice under section 153A or under section 153C of the said Act for an assessment year relevant to any previous year prior to such previous year has not been received and the time for issuance of such notice has not expired.(i)the undisclosed income declared in the form of investment in benami property and existing in the name of benamidar shall be transferred in the name of the real owner on or before 30th September, 2017, failing which immunity under Benami Transactions (Prohibition) Act, 1988 shall not be available.

I. If the total amount of tax, surcharge and penalty payable is not paid before the given dates the declaration will be treated as void and shall be deemed never to have been made.

J. If the declaration is made by misrepresentation or suppression of facts it shall be void and shall be deemed never to have been made.

K. In the last column of Table at Point (I) relating to nature of undisclosed income, specify the type of income viz. house property income, business income, professional income, commission income, interest income etc.

The income disclosure scheme is right, the right way & at the right time but action is the foundational key to all success. The department may satisfy with its partial success as success means doing the best we can with what we have. Presently they are doing and trying to their best but not getting the triumph. Let’s hope for the best.

(About the Author– Author was Member of ICAI- Capacity Building Committee 2010-11 and ICAI- Committee For Direct Taxes 2011-12 and can be reached at email amresh_vashisht@yahoo.com or on phone Phone: 0 1 2 1-2 6 6 1 9 4 6. Cell: 9 8 3 7 5 1 5 4 3 2 having office at 1 1 5, Chappel Street, Meerut Cantt, UP, INDIA)

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