CA NIHAR JAMBUSARIAjnihar@rediffmail.comnihar.jambusaria@ril.com

Income Declaration Scheme, 2016

Income Declaration Scheme, 2016• F.M. announced the scheme in his budget speech and mentioned-

• I propose a limited period compliance window for domestic taxpayers to declare

undisclosed income or income represented in the form of any asset and clear up their

past tax transgressions

Salient Features• The scheme provides for declaration by any person, his undisclosed income by paying tax, surcharge and

penalty on the declared income as specified in Chapter IX.

• The scheme shall commence from 1st June, 2016 and will remain open till the date to be notified by the

Government. Vide Press Release dated 14th May,2016, the Ministry of Finance has notified that the Scheme

shall remain open upto 30th September, 2016 and tax, surcharge and the penalty must be paid latest by 30th

November, 2016. Declaration can be filed online or with the jurisdictional Prin. Commissioner of Income tax.

• The scheme shall be applicable in respect of undisclosed income of any year up to the F.Y. 2015-16.

• Amount payable in respect of declared income as under-

• Tax @ 30% of declared income, Krishi Kalyan Cess @25% of Tax and Penalty @ 25% of tax

• The total amount payable thus will be 45% of the income declared

Declaration of Undisclosed Income-• As per S. 180(1) of the scheme the following incomes can be declared-

1. Any income chargeable to tax which has not been declared by a person by filing return of income

2. Any income chargeable to tax which has not been disclosed in the return of income furnished by the person before the date of commencement of the scheme.

3. Any income chargeable to tax which has escaped assessment as such person omitted or failed to furnish a return or to disclose truly and fully all material facts necessary for assessment or otherwise

Declaration of Undisclosed Income-

a) Declaration under the Scheme Form No. 1b) Jur Prin. CIT to issue acknowledgement Form No. 2 c) Proof of payment of tax, surcharge, penalty Form No 3 d) Certificate of acceptance of declaration to be issued within 15 days of submission of proof of payment Form No 4

Cases not eligible to declare income under this Chapter

1. Undisclosed income is chargeable for any A.Y. for which notice has been issued u/s. 142 or 143(2) or 148 or 153A or 153C and the proceedings are pending before the A.O.

2. Search or survey has been conducted on the person and the time for issuance of notice under the Act has not expired

3. Information is received under an agreement with foreign countries in respect of such undisclosed assets

4. Cases covered under the Black Money(Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015

5. Persons notified under the Special Courts Act, 1992

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

S. 186 of the Chapter provides that undisclosed income declared under this scheme shall not affect the finality of completed assessments and as such completed assessments shall not be reopened under the Income tax Act or Wealth Tax Act.

Cases not eligible to declare income under this Chapter

Valuation of Assets• S. 180(2) of the Chapter provides that where the income chargeable to tax is declared in

the form of investment in any assets, the FMV of such asset as on the date of commencement of this scheme shall be deemed to be the undisclosed income and the FMV as on 1st June, 2016 shall be computed in accordance with Rule 3 of the Income Declaration Scheme Rules, 2016 .

• This means that the unrealized appreciation in value of the asset from the date of its acquisition till the date of commencement of scheme will get taxed under the scheme.

• No deduction in respect of any expenditure or allowance shall be granted against the income in respect of which declaration is made.

• Another issue- What shall be the cost of acquisition for computing capital gain when the asset is sold in future? What shall be the period of holding of such asset?

Valuation of Assets

• Vide its Circular No 17 of 2016 dated 20th May, 2016, the CBDT has clarified that on subsequent sale of the capital asset declared under this scheme, the fair value on 1st June, 2016 shall be the Cost of Acquisition and the period of holding shall commence from the date of determination of fair market value for the purposes of the scheme.

Benefit of Indexation and the Rate of Tax

• Cost of Acquisition of Cap. Asset Rs. 5,00,000 on 1/4/1981• Fair Value on 1/6/2016 Rs. 50,00,000• Tax payable under the scheme @ 45% on Rs. 50,00,000 –

Rs. 22,50,000• Cost of Acquisition on subsequent sale- Rs. 50,00,000• Cost Inflation Index for 1981-82- 100 and for 2016-17

around 1100• Indexation benefit would be lost.

Payment of Tax, Surcharge and Penalty

• Payment of tax, surcharge and penalty shall be paid on or before a date to be notified by the C.G. in the O.G. The proof of such payment is required to be filed with the Principal CIT/CIT before whom the declaration is made.

• If the declarant fails to make payment by the date notified, the declaration shall be deemed to have never been made under this scheme.

• The declaration under this scheme can be filed by a person only once.

• S. 185 provides that the income declared under the scheme shall not be included in the income of any A.Y., if the declarant pays the tax, surcharge and penalty by the specified date.

Payment of Tax, Surcharge and Penalty

• If taxes are not paid by the declarant by the notified date, the income declared under the scheme shall be included in the income of the declarant of the A.Y. in which it is declared.

• Further, there is no provision to revise the declaration. if there is an error in making the declaration and lesser amount of tax is paid due to error in declaration, then the declaration shall be deemed to be invalid and the entire declared amount including the error shall be treated as “income” of the declarant.

Miscellaneous• It is provided that where the declaration is made by misrepresentation or suppression of

facts, such declaration shall be treated as void.

• No benefit, concession or immunity shall be available under the scheme to any person other than the person making the declaration.

• Where in respect of any income which accrued or arose or was received or any asset was acquired out of such income and no declaration under the scheme is made, such income shall be deemed to have accrued or received or asset shall be deemed to have been acquired in the year in which notice u/s. 142, 143(2)or 148 or 153A or 153C is issued by the A. O. and the provisions of the Act shall apply accordingly.

Immunity• Assets declared under the scheme shall be exempt from wealth tax. If the asset

belongs to a firm, the share of the partner shall be exempt.

• Immunity from penalty and prosecution under The Income tax Act and The Wealth tax Act.

• Immunity from the provisions of Benami Transactions (Prohibition) Act,1988, if the asset existing in the name of a benamidar is transferred to the declarant who paid the consideration for such asset or to his legal representative within the period notified by the C.G..