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    Income Declaration Scheme, 2016

    Introduction

    In order to provide an opportunity to all persons, a new scheme, i.e., Income Declaration Scheme, 2016 (“Scheme”) has been introduced by the Finance Ministry which allows all persons who have not paid full taxes in the past to come forward and declare the undisclosed income and pay tax, surcharge and penalty. The amount of such tax, surcharge and penalty works out to 45 percent of such undisclosed income declared. 

    Chapter IX has been introduced in the Income-tax Act, 961 (“Act”) for the Scheme and is named as ‘The Income Declaration Scheme, 2016’ consisting of sections 181 to section 199. The scheme has been introduced with effect from June 1st2016 and will remain open up to the date to be notified by the Central Government in the Official Gazette which is September 30, 2016 (notified by the Central Government). 

    The scheme is applicable in respect of undisclosed income for any Financial Year (“FY”) prior to FY 2016-17 (i.e., AY 2017-18). The Income Declaration Rules, 2016 has also been notified by the Central Board of Direct Taxes (“CBDT”) (on May 19, 2016) and has issued various explanatory notes and clarifications in the form of ‘Frequently asked questions’ (“FAQ”) for better compliance with the Scheme. 

    Detailed Analysis of the Scheme

    1. Applicability of the Scheme: 

    As mentioned above, the Scheme is open for all persons who wish to disclose their undisclosed income and for which full taxes have not been paid in the past. 

    Section 183 of the Act lays down that in respect of any income chargeable to tax under the Act for any 

    AY(prior to AY 2017-18) for which: 

    • No return has been under section 139 of the Act 
    • he has failed to disclose such income in the return of income filed (before the commencement of this Scheme)
    • has escaped assessment by reason of omission or failure on the part of such person to furnish a return of income or to disclose fully and truly all material facts necessary for the assessment or otherwise 

    A person can make a declaration of undisclosed income in Form-1 (to the Principal Commissioner of 

    Income Tax (“CIT”) or the CIT). The declaration can be made in the following manner: 

    1. electronically under digital signature; or 
    2. through transmission of data in the form electronically under electronic verification code; or 
    3. in print form, to the concerned Principal Commissioner or the Commissioner who has the jurisdiction over the declarant. 

    Post such declaration, the jurisdictional Principal CIT / CIT will issue an acknowledgement in Form-2 within 15 days from the end of the month in which the declaration in Form-1 has been made. The time limit has been increased to 30 days from the end of the month in which the declaration is made only for all declarations made in the month of July, 2016 due to the changes in Form-2. 

    Post payment of tax, surcharge and penalty, the declarant has to file Form-3 for the proof of the payment to the Jurisdictional Principal CIT / CIT after which the said authority will issue a certification in Form-4 of the acceptance of declaration within 15 days of submission of proof. However, no time limits have been provided for filing of Form-3. 

    This income can be in the form of investment in assets in India or otherwise.In case the income is in the form of investment, the Fair Market Value (“FMV”) as on June 1, 2016 (date of commencement of the Scheme) shall be deemed to be undisclosed income. The determination of FMV shall be done in accordance with Rule 3 of the Income Declaration Scheme Rules, 2016 (“Rules”). 

    No deduction of any expense or any allowance relating to such undisclosed income shall be allowed to the declarant. 

    1. Non-applicability of Scheme 

    No declaration can be made in respect of any undisclosed income chargeable to tax under the Act for which: 

    • A notice under section 142, section 143(2), section 148, section 153A or section 153C of the Act has been issued and served upon the person on or before May 31, 2016 in respect of such AY for which the proceeding is pending before the Assessing Officer; or 
    • 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 in a previous year and the time limit for issuance of notice under section 143(2), section 153A or under section 153C for the relevant AY has not expired; 

    However, in case the assessment has been completed and certain income has not been disclosed neither been assessed, then for such income a declaration can be made under this Scheme. 

    • Information is received under an agreement with foreign countries in respect of such undisclosed assets 
    • Cases covered under the Black Money(Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 
    • Persons notified under the Special Courts Act, 1992 
    • 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

     

     Amount of tax to be paid:

    Section 184 and 185 deals with the amount of tax, surcharge and penalty to be paid which totals out to 45%.This comprises of the following: 

    -     tax at 30% of such undisclosed income 

    -    surcharge / Krishi Kalyan Cess at 25% of amount of tax (i.e., 7.5% of the amount of undisclosed income) 

    -    penalty at 25% of amount of tax (i.e., 7.5% of the amount of undisclosed income)

      

    1. Time limit for making the declaration: 

    The time limit for making the declaration has been limited to 4 months, i.e., from June 1, 2016 to September 30, 2016. However, taxes, surcharge and penalty relating to such undisclosed income can be deposited in the following manner: 

    • Minimum25% by Nov 30, 2016. 
    • Minimum50% by March 31, 2017 (-) amount paid by Nov 30, 2016
    • 100%ofthe amount to be paid by Sep 30, 2017

     

     

    V.  Authorized person to sign the declaration:

     

     

     

     

     

     

     

     

     

     

     

     

    S. No

    Status of the declarant

     

    Declaration to be signed by

     

     

     

     

     

     

     

     

     

     

     

     

    a)

    Individual himself;

     

     

     

     

     

    b)

    where individual is absent from India, person

     

    1.

    Individual

     

    authorized by him;

     

    c)

    where the individual is mentally incapacitated,

     

     

     

     

     

     

     

     

     

     

    his guardian or other person competent to act

     

     

     

     

     

     

    on his behalf.

     

     

     

     

     

     

     

     

     

     

     

     

    a)

    Karta;

     

     

     

     

     

    b)

    where the Karta is absent from India, by any

     

    2.

    HUF

     

    other adult member of the HUF;

     

    c)

    where the Karta is mentally incapacitated from

     

     

     

     

     

     

     

     

     

     

    attending to his affairs, by any other adult

     

     

     

     

     

     

    member of the HUF

     

     

     

     

     

     

     

     

     

     

     

     

    a)

    Managing Director;

     

     

     

     

     

    b)

    where  for  any  unavoidable  reason  the

     

    3.

    Company

     

    Managing Director is not able to sign, by any

     

     

    Director

     

     

     

     

     

     

     

     

     

     

    c)

    where there is no Managing Director, by any

     

     

     

     

     

     

    Director.

     

     

     

     

     

     

     

     

     

     

     

     

    a)

    Managing Partner;

     

     

     

     

     

    b)

    where  for  any  unavoidable  reason  the

     

    4.

    Firm

     

    Managing Partner is not able to sign, by any

     

     

    Partner, not being a Minor

     

     

     

     

     

     

     

     

     

     

    c)

    where there is no Managing Partner, by any

     

     

     

     

     

     

    Partner, not being a Minor

     

     

     

     

     

     

     

     

    5.

    Any other association

    a)

    Any member of the association or

     

    b)

    The principal officer.

     

     

     

     

     

     

     

     

     

     

     

     

    6.

    Any other person

    a)

    That person or

     

    b)

    by some other person competent to act on his

     

     

     

     

     

     

    behalf

     

     

     

     

     

     

     

     

     

     

    It is important to note that the if a declaration (under this Scheme) is made by one person with respect of (“w.r.t“) his income or as a representative assessee in respect of the income of any other person, any other declaration made by the same person, either w.r.t his income or the income of such other person will be considered as void. This implies that a person can make only one declaration under this Scheme, either for his income or such other person on whose behalf he is the representative assessee.

     

     

    1. Impact of declaration of undisclosed income under this Scheme: 

    The following points are noteworthy w.r.t the income declared by a declarant: 

    • The income declared will not form a part of the total income of the declarant if the respective dues (tax, surcharge and penalty) has been paid within the due date specified.
    • Such income will not impact the completed assessments under the Income-Tax Act, 1961 or the Wealth-tax Act, 1957 (27 of 1957) 
    • No set off or relief can be claimed in any appeal, reference or other proceedings in relation to any assessments or reassessments and the same cannot be reopened as well. 
    • If the undisclosed income is in the form of investment in asset, which is in the name of a benamidar is transferred to the declarant (who provides the consideration for such asset) or to his legal representative, within the period notified by the Central Government, i.e., within September 30, 2017, such income would not be treated as benami transactions and the provisions of the Benami Transactions (Prohibition) Act, 1988 (45 of 1988) shall not apply to the declarant. 
    • The amount of tax, surcharge and penalty paid under section 184 and 185 is non-refundable
    • No further penalties can be levied to the declarant relating to the income declared if the declaration is not considered void. 

    VII. IDS vs Income Tax Assessment 

    VIII. Cases where declaration will be considered void: 

    In the below mentioned cases the declaration will be considered as void and the Income-tax Authorities can use the information furnished under such Scheme for assessment under the normal provisions of the Act (including penalties and prosecution): 

    • In case where declaration has been furnished in circumstances to which the Scheme does not apply (section 196 of the Act)
    • In case where a declaration has been furnished within the time limit prescribed but the amount of tax, surcharge and penalty has not been paid within the time limit prescribed 
    • In case a person has already filed a declaration under this Scheme, the second declaration being filed will be considered as void 
    • Where the declaration has been made by misrepresentation or suppression of facts or information 

    Further, as mentioned above, any amount paid under this Scheme shall not be refundable even if the declaration is considered void.

    1. Certain important clarifications issued by CBDT 
    • In case of undisclosed income which is in the form of investment in the form of an asset, if the tax, surcharge and penalty has been paid under this Scheme by considering the FMV as on June 1, 2016, in case of capital gains arising (where the asset is sold in future): 
    • Period of holding will be considered from June 1, 2016
    • Cost of such asset will be taken as the FMV as on June 1, 2016. 
    • In case of undisclosed income which is in the form of investment in the form of an asset and such asset is partly from income that has been assessed to tax earlier, the sub-rule (2) of Rule 3 of the Rules shall apply, wherein it has been mentioned that where investment in any asset is partly from an income which has been assessed to tax, proportionate amount will be disclosed under this Scheme.
    • If a person declares only part of his undisclosed income under the Scheme, no immunity will be granted for the part undisclosed. 
    • A person cannot disclose income which has been acquired from money earned through corruption. 
    • The declarations made under this Scheme will be kept confidential .There would be no further enquiry post declaration apart from whether any proceedings are pending under the sections mentioned above. 
    • The declaration shall be invalid in case only part payment of the amount of tax, surcharge and penalty has been made. 
    • In case of change in entities, where the earlier entity is no more in existence, the declaration is to be filed in the name of the existing entity (eg. Amalgamated company in case of amalgamating company as the same is no more in existence) 
    • PAN has to mandatorily be disclosed
    • Credit for taxes deducted shall be allowed against such undisclosed income which is related, declared under the Scheme and where credit of such tax has not been claimed in any AY. 
    • Various clarifications and rules have been framed for the method of computation of FMV of certain assets 
    • A revised declaration can be filed provided that: 
    • The undisclosed income in the revised declaration is not less than the undisclosed income declared in the declaration already filed.

    The Scheme introduced by the Finance Ministry is akin to a place of worship wherein everyone can wash their sins without having to explain anything to anyone. The declarants are not only protected from prosecution but also huge penalties that might even wash away such income. As rightly mentioned by the IT Department “Your undisclosed income is a time bomb……” 

    "The world breaks everyone, and afterward, some are strong at the broken places" - Ernest Hemingway

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