Double edged Sword for Tax Evaders – The Income Declaration Scheme, 2016

Shri Arun Jaitley, Hon’ble Finance Minister of the Government of India, introduced The Income Declaration Scheme, 2016 vide Finance Bill, 2016

After the budget presentation, in an interview to Doordarshan, the Finance Minister said that to bring the Black money back into the system, a new scheme of income declaration was being introduced for a limited period. This is not any VDIS or Amnesty Scheme. The dishonest tax payers cannot enjoy at the cost of their honest counter parts. Therefore, in addition to the flat rate of tax of 30%, an additional Krishi Kalyan Cess at 25% of such tax and penalty of 25% of such tax would also be payable. Thus summing up to 45% of the income declared.

Brief Highlights of Chapter IX of Finance Bill, 2016

1. Declaration can be made in respect of any income chargeable under the Income Tax Act or the Wealth Tax Act up to the Previous Year 2015-16, i.e., Asst Year 2016-17.

2. Persons Eligible:

a. Failed to furnish return of income u/s 139

b. Failed to disclose such income or asset in the return of income furnished before the 01.06.2016

c. Escaped assessment by reason of omission or failure on the part of such person to furnish a return or to disclose fully and truly all material facts necessary for assessment.

3. Persons Ineligible:

a. To any person on whom an order of detention has been made under COFEPOSA, 1974

b. Persons notified under Section 3 of the Special Court (Trial of offences relating to Transaction in Securities) Act, 1992

c. In relation to any undisclosed foreign income and asset which is chargeable to tax under the Black Money and Imposition of Tax Act, 2015

d. To persons on whom in relation to any Asst Year preceding the Asst Year 2017-18

(i) Where a notice u/s 142 or 143(2) or 148 or 153A or 153C has been issued in respect of such asst year and pending before the AO.

(ii) Where a search or survey has been conducted, and no notice u/s 142(2) or 153A or 153C has been issued and the time limit for issuing such notice has not expired.

(iii) Where any information has been received by the competent authority u/s 90 or 90A of the Act.

4. Declaration in respect of any undisclosed asset – Fair market value of Investment in any asset as on 01st June, 2016 to be considered for the purpose of computing undisclosed income.

5. Declaration shall be made to the Principal Commissioner or the Commissioner in such manner as may be prescribed.

6. Tax and penalty to be paid before the due date as may be specified.

7. Failure to pay the taxes and penalty as aforesaid, the declaration shall be deemed never to have been filed.

8. Income so declared under the scheme shall not be included in the total income for any assessment year nor can the assessee claim reopening of completed assessment on account of such declaration.

9. In certain cases, provisions of Benami Transaction (Prohibition Act) 1988 not to apply to the declarant.

10. Declaration not to be used as evidence against the declarant under any law for the time being in force, except for penalty leviable under this scheme or for prosecution under the Income Tax Act or the Wealth Tax Act.

11. Declaration made by misrepresentation or suppression of facts, shall be void-ab-initio.

12. Exemption from Wealth Tax in respect of declaration:

a. No wealth tax shall be payable for failure to furnish wealth tax return or where such asset has not been shown in the wealth tax return.

b. Where the asset has been understated in the return of wealth, then excess of voluntarily disclosed income over the understatement of asset shall be taken into account in computing the net wealth for the asst. years.

c. Exemption shall not available if the declarant fails to pay the taxes and penalty due on the disclosed income.

13. Other Points.

a. No benefit, concession or immunity on any person other than the person making the declaration under this scheme.

b. Where tax has not been paid on the declared income, such income shall be taxable in the previous in which such declaration is made.

c. Any income accrued or asset acquired out of such declared income in respect of which no declaration is made, such income or asset shall be deemed to have been earned or acquired in the year in which notice u/s 142 or 143(2) or 148 or 153A or 153C is issued by the AO.

Memorandum explaining the bill

[Clauses 178 to 196 of the Finance Bill, 2016]

An opportunity is proposed to be provided to persons who have not paid full taxes in the past to come forward and declare the undisclosed income and pay tax, surcharge and penalty totalling in all to forty-five per cent of such undisclosed income declared.

The scheme is proposed to be brought into effect from 1st June 2016 and will remain open up to the date to be notified by the Central Government in the official gazette. The scheme is proposed to be made applicable in respect of undisclosed income of any financial year upto 2015-16.

Tax is proposed to be charged at the rate of thirty per cent on the declared income as increased by surcharge at the rate of twenty five per cent of tax payable (to be called the Krishi Kalyan cess). A penalty at the rate of twenty five per cent of tax payable is also proposed to be levied on undisclosed income declared under the scheme.

It is proposed that following cases shall not be eligible for the scheme:

¨ where notices have been issued under section 142(1) or 143(2) or 148 or 153A or 153C, or

¨ where a search or survey has been conducted and the time for issuance of notice under the relevant provisions of the Act has not expired, or

¨ where information is received under an agreement with foreign countries regarding such income,

¨ cases covered under the Black Money Act, 2015, or

¨ persons notified under Special Court Act, 1992, or

¨ cases covered under Indian Penal Code, the Narcotic Drugs and Psychotropic Substances Act, 1985, the Unlawful Activities (Prevention) Act, 1967, the Prevention of Corruption Act, 1988.

It is proposed that payment of tax, surcharge and penalty may be made on or before a date to be notified by the Central Government in the Official Gazette and non-payment up to the date so notified shall render the declaration made under the scheme void.

It is proposed to provide that declarations made under the scheme shall be exempt from wealth-tax in respect of assets specified in declaration.

It is also proposed that no scrutiny and enquiry under the Income-tax Act and Wealth-tax Act be undertaken in respect of such declarations and immunity from prosecution under such Acts be provided. Immunity from the Benami Transactions (Prohibition) Act, 1988 is also proposed for such declarations subject to certain conditions.

It is proposed to provide that where a declaration under the scheme has been made by misrepresentation or suppression of facts, such declaration shall be treated as void. It is also proposed that nothing contained in the Scheme shall be construed as conferring any benefit, concession or immunity on any person other than the person making the declaration under this Scheme.

In cases where any declaration has been made but no tax and penalty referred to the scheme has been paid within the time specified, the undisclosed income shall be chargeable to tax under the Income-tax Act in the previous year in which such declaration is made. In cases where any income has accrued, arisen or received or any asset has been acquired out of such income prior to commencement of this Scheme, and no declaration in respect of such income is made under the Scheme such income shall be deemed to have accrued, arisen or received, or the value of the asset acquired out of such income shall be deemed to have been acquired or made, in the year in which a notice under section 142, section 143(2) or section 148 or section 153A or section 153C of the Income-tax Act is issued by the Assessing Officer and the provisions of the Income-tax Act shall apply accordingly.

It is further proposed that if any difficulty arises in giving effect to the provisions of this Scheme, the Central Government may, by order, not inconsistent with the provisions of this Scheme, remove the difficulty by an order not after the expiry of a period of two years from the date on which the provisions of this Scheme come into force and such order be laid before each House of Parliament.

It is proposed that the Central Board of Direct Taxes under the control of Central Government be provided the power to make rules, by notification in the Official Gazette, for carrying out the provisions of this Scheme and such rules made be laid before each House of Parliament in the manner provided in the scheme

CA Prateek Jain- prateekjain135@gmail.com

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