THE INCOME DECLARATION SCHEME, 2016

[Mr. M. GOVINDARAJAN]

Presenting the Budget 2016-17 in Parliament, the finance minister said he wanted to give an opportunity to earlier non-compliant to move to the category of compliant as he proposed a limited period compliance window for domestic tax payers to declare undisclosed income represented in any form of assets.  But it is not a voluntary disclosure of income scheme. 

For this purpose the Finance Minister in the Finance Bill, 2016 introduced ‘The Income Declaration Scheme, 2016’ in Chapter IX of the Bill.   The Scheme will come into effect from 01.06.2016.

Non applicability

Clause 193 of the Bill provides that this scheme shall not apply to certain cases as detailed below:

• to any person in respect of whom an order of detention has been made under the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act,1974.  Provided that-

• such order of detention, being an order to which the provisions of Section 9 or Section 12 of the said Act do not apply, has not been revoked on the report of the Advisory Board under Section 8 of the said Act or before the receipt of the report of the Advisory Board; or
• such order of detention to which the provisions of Section 9 of the Act apply, has not been revoked before the expiry of the time for, or on the basis of, the review under Section 9(3), or on the receipt of the Advisory Board under Section 8, read with Section 9(2) of the Act; or
• such order of detention, being an order to which the provisions of Section 12A of the Act apply, has not been revoked before the expiry of the time for, or on the basis of, the first review under Section 12A (3), or on the basis of the report of the Advisory Board under Section 8, read with Section 12A(6) of the Act; or
• such order of detention has not been set aside by a court of competent jurisdiction;

• in relation to prosecution for any offence punishable under Chapter IX or Chapter XVII of IPC, the Narcotic Drugs and Psychotropic Substances Act,1985, the Unlawful Activities (Prevention) Act, 1967 and the Prevention of Corruption Act, 1988;
• to any person notified under Section 3 of the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992;
• in relation to any undisclosed foreign income and asset which is chargeable to tax under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015;
• in relation to any undisclosed income chargeable to tax under the Income Tax Act for any previous year relevant to an assessment year prior to the assessment year beginning on 01.04.2017-

• where a notice under Section 142,  Section 143(2) or Section 148 or Section 153A or Section 153C of the Income Tax Act has been issued in respect of such assessment year and the proceeding is pending before the Assessing Officer; or
• 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 Section 143(2) 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 to such previous year has not been issued and the time for issuance of such notice has not expired; or
• where any information has been received by the competent authority under an agreement entered into by the Central Government under Section 90 or Section 90A of the Income Tax Act in respect of such undisclosed asset. 

Declaration of undisclosed income

Clause 180 of the bill deals with the declaration of dividend.  Clause 180(1) provides that subject to the provisions of the scheme, any person may make, on or after the date of commencement of the scheme but before a date to be notified by the Central Government in the Official Gazette, a declaration in respect of any income chargeable to tax under the Income Tax Act for any assessment year prior to the assessment year beginning on 01.04.2017-

• for which he has failed to furnish a return under Section 139 of the Income Tax Act;
• which he has failed to disclose in a return of income furnished by him under the Income tax Act before the date of commencement of this scheme;
• which has escaped assessment by reason of the omission or failure on the part of such person to furnish a return under the Income Tax Act or to disclose fully and truly all material facts necessary for the assessment or otherwise.

Valuation

Clause 180 (2) provides that where the declaration is in the form of investment in any asset the fair market value of such assets as on the date of commencement of this scheme shall be deemed to be the undisclosed income.  Clause 180(3) provides that the fair market value of any asset shall be determined in such manner, as may be prescribed.  Clause 180 (4) provides that no deduction in respect of any expenditure or allowance shall be allowed against the income for which the declaration is made.

Manner of declaration

Clause 183 provides the manner of declaration.  A declaration shall be made to the Principal Commissioner or the Commissioner.   It shall be in such form and be verified in such manner as may be prescribed.  The declaration shall be signed, where the declarant is -

• an individual, by the individual himself; where such individual is absent from India by the individual concerned or by some person duly authorized by him in this behalf; and where the individual is mentally incapacitated from attending to his affairs, by his guardian or by any other person competent to act on his behalf’
• a HUF, by the Karta.  Where the Karta is absent from India or is mentally incapacitated from attending to his affairs, by any other adult member of such family;
• a company, by the Managing Director thereof, or where for any unavoidable reason such Managing Director is not able to sign the declaration or where there is no Managing Director, by any Director thereof;
• a firm, by the Managing partner thereof, or where for any unavoidable reason such managing partner is not able to sign the declaration or where there  is no managing partner as such, by any partner thereof, not being a minor;
• any other association, by any member of the association or the principal officer thereof; and
• where the declarant is any other person, by that person or by some other person competent to act on his behalf.

Any person making a declaration in respect of his income or as a representative in respect of income of any other person shall not be entitled to make any other declaration.  If any such additional declaration is made it shall be void.

Income Tax and Surcharge and penalty

Clause 181 provides that the undisclosed income declared shall be chargeable to tax @ 30% of such undisclosed income.   Surcharge, known as Krishi Kalyan Cess on tax calculated @ 25% of such tax.

Clause 182 provides that the person making a declaration of undisclosed income shall, in addition to tax and surcharge be liable to pay penalty @ 25% of such tax.

Payment of tax

Clause 184 provides that the tax, surcharge and penalty shall be paid on or before a date to be notified by the Central Government in the Official Gazette.  The declarant shall file the proof of payment of the same on or before the date notified with the Principal Commissioner or the Commissioner, as the case may be, before whom the declaration was made.  If the declarant fails to pay the same the declaration filed by him shall be deemed never to have been made under this scheme.

Other conditions

Clause 185 provides that the amount of undisclosed income shall not be included in the total income of the declarant for any assessment year, if the declarant makes the payment of tax, surcharge and the penalty by the date specified.

Clause 186 provides that the declarant shall not be entitled, in respect of undisclosed income declared or any amount of tax and surcharge paid thereon, to re-open  any assessment or reassessment made under the Income Tax Act or Wealth Tax Act or claim any set off or relief in any appeal, reference or other proceeding in relation to any such assessment or re-assessment.

Clause 187 provides that the provisions of the Benami Transactions (Prohibition) Act, 1988 shall not apply in respect of the declaration of undisclosed income made in the form of investment in any asset, if the asset existing in the name of a benamidar is transferred to the declarant, being the person who provides the consideration for such asset, or his legal representative, within the period notified by the Central Government.

Clause 188 provides that any amount of tax , surcharge  or penalty paid in pursuance of a declaration shall not be refundable.

Clause 189 provides that the declaration shall not be admissible in evidence against the declarant for the purpose of any proceeding relating to imposition of penalty, other than the penalty leviable under Clause 182.

Void declaration

Clause 190 provides that where a declaration has been made by misrepresentation or suppression of facts, such declaration shall be void and shall be deemed never to have been made under this scheme.

Exemption from wealth tax

Clause 191 provides that where the undisclosed income is represented by cash, including bank deposits, bullion, investment in shares or any other assets specified in the declaration-

• in respect of which the declarant has failed to furnish a return under Section 14 of the Wealth Tax Act, for the assessment year commencing on or before the 01.04.2015; or
• which have not been shown in the return of net wealth furnished by him for the said assessment year or years; or
• which have been understand in value in the return of net wealth furnished by him for the said assessment year or years,

then, notwithstanding anything contained in the Wealth Tax Act, or any rules, made thereunder-

• wealth tax shall not be payable by the declarant in respect of the assets and such assets shall not be included in his net wealth for the said assessment year or years;
• the amount by which the value of the assets has been understated in the return of net wealth for the said assessment year or years, to the extent such amount does not exceed the voluntarily disclosed income utilized for acquiring such assets, shall not be taken into account in computing the net wealth of the declarant for the assessment years.

Applicability of certain provisions of Income Tax Act and Wealth Tax Act

Clause 192 provides that the provisions of Chapter XV of the Income Tax Act relating to liability in special cases and of Section 189 or the provisions of Chapter V of the Wealth Tax Act relating to liability in respect of assessment in special cases shall, so far as may be, apply in relation to proceedings under this scheme as they apply in relation to proceedings under the Income Tax Act or, as the case may be, Wealth Tax Act.

Removal of doubts

Clause 194 provides that nothing in this scheme shall be construed as conferring any benefit, concession or immunity on any person other than the person making the declaration.  Where any declaration is made but no tax, surcharge and penalty has been paid within the specified date, the undisclosed income shall be chargeable to tax under the Income Tax Act in the previous year in which such declaration is made.   Where any income accrued, arisen or received or any asset has been acquired out of such income prior to commencement of the scheme and no declaration is made-

• such income shall be deemed to have accrued, arisen or received, as the case may be; or
• the value of the asset acquired out of such income shall be deemed to have been acquired or made

in the year which a notice under Section 142, Section 143(3) or Section 148 or Section 153A or Section 153C of the Income tax is issued by the Assessing Officer and the provisions of the said Act shall apply accordingly.

Powers of the Government

Clause 195 gives the powers to the Central Government to remove difficulties.  The said clause provides 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.  No such order shall be made after the expiry of a period of 2 years from the date on which the provisions of this scheme come into force.

Clause 196 gives powers to the Central Government to make rules.

The government plans to open the compliance window under the Income Tax Disclosure Scheme from June 1 to September 30, 2016 with option to pay amount due within 2 months of declaration.