CA Umesh Sharma
“Beware… Tax evaders take bath in this “Kumbhmela” of INCOME DECLARATION SCHEME 2016 or else?”
Arjuna(Fictional Character): Krishna, by taking a holy bath in Kumbhmela, a person purifies himself. Now the Income Tax Department has come up with the Income Declaration Scheme 2016 to purify the Tax evaders. The government has issued its forms, rules and other details on 20th May 2016. But what is this scheme? How can a taxpayer clear his sins of black money? Everyone should take this conversation as a means of gathering knowledge and not otherwise.
Krishna(Fictional Character):Arjuna, to forgive is the sign of the supreme. In Kumbhmela devotees and religious people gather and try to purify their mind and body by taking a holy bath. Now the Govt. has given chance to the tax evaders to come clean of their Black money and the Govt will forgive them. The Central government had announced Income tax Declaration Scheme in the budget in 2016. In the previous year, the government had brought up the scheme for payment of tax by declaration of undisclosed foreign investment/ income. And now this year the government has brought the scheme for declaration of undisclosed investment/ income in the country. This scheme has been introduced so as to curb theblack money.In the year 1997, Voluntary Income Declaration Scheme was introduced. But this new scheme is totally different. So a tax evader can take benefit of it and clear dues.
Arjuna: Krishna, what are the features of this scheme?
Krishna: Arjuna, the main features of this scheme are as follows:
- If declaration is made of the undisclosed income under this scheme, then income tax at the rate of 30%, Krushi Kalyan surcharge at the rate of 7.5% and penalty at the rate of 7.5% totaling 45% would have to be paid on such undisclosed income.
- The undisclosed income or the investment made in any asset from such income declared under this scheme shall be prior to A.Y. 2017-18. Also if the taxpayer has not filed income tax return or has not included income in the return, then such income can be declared under this scheme.
- Where the income chargeable to tax is declared in the form of investment in any asset, for e.g. Gold, Jewels, Drawings, Arts, Immovable Property,etc. the fair market value of such asset as on 1st June, 2016 shall be considered as its value.For example, if a land had been purchased in 2010-11 for Rs.3 lakh and its fair market value as on 1st June 2016 is Rs.5 lakh, then tax would have to be paid on Rs.5 lakh under this scheme.
- The declaration under this scheme can be made from 1st June 2016 till 30th September 2016.
- Taxpayer would have to pay tax, surcharge and penalty totaling 45% before 30th November 2016.
- The person making declaration and the related details would be kept confidential.
Arjuna: Krishna, which taxpayers would not be allowed to make declaration under this scheme?
- If the taxpayer receives a Scrutiny or Enquiry or Income Escaping Notice under section 142 or 143 or 147 or 153 from the Income Tax Department upto 31st May 2016, then he would not be able to make declaration of that respective year.
- If a search or survey has been conducted in the previous year and a time limit of serving notice is not completed then the taxpayer cannot apply for the scheme for that year.
- If the taxpayer’s foreign income or investment comes under Black Money and Imposition of Tax Act.
- Income generated by way of corruption is not allowed to be declared under this scheme. Due to this government employees will have to face the problem.
Arjuna: Krishna, how to apply under this scheme?
- Taxpayer would have to fill details in Form-1 and submit it online using the digital signature or Electronic Verification Code(EVC) or in paper form till 30th September 2016.
- The Commissioner of Income Tax(CIT) 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 will have to furnish proof of payment made in respect of tax, surcharge and penalty to the CIT in Form-3.
- The commissioner will issue a certificate in Form-4 of the accepted declaration within 15 days.
Arjuna: Krishna, what are the benefits of this scheme to the taxpayer?
- The income which is declared under this scheme would not be included in the total income of the declarant under the Income-tax Act for any assessment year.
- Such income will not be admissible in evidence in any penalty or prosecution proceedings under the Income Tax Act and the Wealth Tax Act
- The declarant will be relieved from proceedings under the Benami Transactions Act, 1988.
- If asset is declared under this scheme, then no Wealth Tax will be levied for any of the previous years. Fair market valuation of the asset should be done from a Certified Valuer to avoid any complications in the future.
Arjuna: Krishna, what should taxpayers learn from this scheme?
Krishna: Arjuna, the taxpayer should bring undisclosed income and investment in books which means to turn black into white, the government has introduced this Fair and Lovely Scheme.But due to the provision of fair market value, how much successful will the scheme be and how many taxpayers would participate in this scheme. Now such schemes are getting introduced in various tax laws in India. Government is trying to reduce the tax evasion by introducing such schemes. If this scheme is not utilized by the taxpayer for declaring his undisclosed income then he would have to face 300% penalty, interest, etc. This scheme has been introduced for undisclosed gold, silver, diamond, land, etc. Let’s see how many people do penance by taking plunge or holy batch in this scheme’s “Kumbhmela” and get away with black money. It’s also true, many feels that honest taxpayer are many times not awarded but tax evaders are forgiven. But to forgive is the sign of goodness and thus if Government gets success in such scheme, Our Country will get rid of Black Money soon.