In an effort to encourage tax evaders to file their income tax returns, Finance Minister Arun Jaitley introduced the Income Tax Declaration Scheme in 2016 as part of the Finance Bill, 2016. Under this scheme, anyone who has not disclosed their income or assets truthfully in the previous tax assessment year can divulge the details to the government. In turn, they will have to pay a tax of flat 45% instead of the random penalty amounts enforced.
However, if individuals or companies have “secret stash” of cash hidden away from the taxman’s eyes and that stash is found by the government any time in the future, the amount will be added to the income tax slab of the assessment year in which it comes to light and tax and penalties charged accordingly.
Eligibility Criteria for Income Tax Declaration Scheme:
Section 2(31) of the Income Tax Act specifies which kinds of entities can file tax. These are:
- Hindu Undivided Family
- Association of persons, whether incorporated or not
- Local authority
- Every artificial juridical person not falling in the above categories
All the above 7 categories of entities can declare additional income up to assessment year 2016-17 through the Income Declaration Scheme. The following individuals or companies, however, are not allowed to take advantage of this scheme:
- Persons to whom notices have been issued under Sections 142(1), 143(2), 148, 153A or 153C: This includes those who have been served pre-assessment inquiry notice, scrutiny notice, income escaping assessment notice, notice on assessment in case of search or requisition, and notice on assessment of income of another person.
- Persons on whom a search or survey has been conducted and is ongoing.
- Persons about whose income foreign countries have provided information to the government.
- Persons who are involved in cases under the Black Money Act, 2015.
- Persons notified under Special Court Act, 1992.
- Persons involved in cases under Indian Penal Code, Narcotic Drugs and Psychotropic Substances Act, 1985, Unlawful Activities (Prevention) Act, 1967 or Prevention of Corruption Act, 1988.
Key Features of Income Declaration Scheme 2016:
Given below are the main features of this scheme:
- The scheme is valid between June 1, 2016 and September 30, 2016. The date can be extended or shortened by the Central Government.
- The scheme is applicable to both income tax and wealth tax.
- The tax chargeable is 45% – 30% income tax rate + Krishi Kalyan Cess on 25% of this tax (which is 7.5%) + penalty on 25% of the tax (7.5% again).
- You need to pay the taxes within 2 months from the date of declaring the assets/income, or within the date notified by the government.
- If you have declared additional income but not paid taxes by the end of the deadline, the individual/company will be treated as not having made any declaration. Additionally, income tax rate as applicable in a normal case for the previous tax year, would be charged.
- You can only make one declaration – multiple declarations will not be entertained. In case of multiple declarations, only the first one will be considered as valid.
- If the declaration is made by concealing or distorting facts, it will be considered as invalid.
- If you pay the tax and penalty as notified after declaring the additional income/assets, that amount will not be added to your income in any assessment years. It will be considered as disparate from the normal income tax cycle.
- If assets – immovable or movable – are part of your income or wealth declaration, the fair market value of the asset as on June 1, 2016, would be considered as the undisclosed income.
- In case of a declaration made by a company or firm, the assets/income declared by the firm/company will not be counted while calculating the wealth or income of any related or partner firms.
- The undisclosed income cannot be considered as benami transaction in certain cases, where the investment is made in an asset, if the said asset is transferred to the person making the declaration or their legal representative.
- The declaration made under this scheme will not be used to charge any additional penalty or a court case against the individual/company.
- The declaration has to be made to the Principal Commissioner or Commissioner of tax in the relevant jurisdiction.
While the scheme is “quite encouraging” according to financial experts, we will have to wait and watch to see how many declarations will be made and how much revenue the government makes out of it. This is a kind of amnesty scheme offering defaulters a chance to come clean, and is reminiscent of the Voluntary Disclosure of Income Scheme (VDIS) of 1997, which garnered a revenue of over Rs. 7,800 crore (INR 78 billion) for the government. However, while VDIS granted immunity from legal punishments to the individuals/companies who disclosed their true income, the Income Declaration Scheme of 2016 merely offers a “discount” on the tax penalty.
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News About Income Declaration Scheme
Rs.4,807 crore black money detected by IT department
The demonetization initiative was taken in order to curb black money and counterfeit notes. Since the demonetization announcement, the Income Tax Department has detected Rs.4,807 crores of black money in India. The IT department has also seized new notes worth Rs.112 crore. The IT department has performed 1,138 investigations and issued 5,184 notices to individuals and businesses on charges of tax evasion. There are over 3,000 notices that have been issued for deposits made since demonetization was announced.
The IT department is carrying out various investigations and operations to detect black money. Since the demonetization announcements, the terrorism and Hawala transactions have dropped significantly in India. The IT department will continue with the operation to curb black money. Recently, the IT department has asked banks, cooperative banks, and post offices to report the deposits made before the demonetization announcements. This will help in analyzing the trend in bank deposits.
16th January 2017
IDS last day for tax payment November 30th
Under the Income Disclosure Scheme (IDS) which was open from June to September, domestic holders of unaccounted for income were allowed to declare the total unaccounted income and pay a one-time 45% tax and penalty on it. The first instalment of the tax, which is 25% of the total tax, is due on the 30th of November. The Income Tax department in its advertisement stated that defaulting on payment of this instalment will result in their Income Tax Disclosure being treated as void. Under this scheme Rs.65,250 crore was declared, which is expected to generated nearly Rs.29,362 crore in taxes.
29th November 2016
Tax collection in Rajasthan short of projection
After the demonetization of the Rs.500 and Rs.1,000 currency notes, Rajasthan was expecting to see a surge in advance taxes being paid via the old currency notes. Reports have emerged that the tax collection this month has not been significantly higher than the previous month or during the same period last year. The government has collected Rs.2,000 crore in taxes so far this month. The demonetization has slowed down economic activity in the state as most of the state’s revenue is generated through tourism, agriculture, mining and petroleum. The recent drop in petroleum prices and the slow real estate market has had an adverse effect on state’s coffers.
28th November 2016
Tax Amnesty Manages to secure only a Small Portion of Black Money
The Income declaration Scheme closed on 30th September 2016 and since the first three months saw low participation it closed on a high note of 64,275 cases of people coming forward and disclosing hidden wealth and assets. Though the scheme saw a collection of Rs 65,250 Crore, a record in the history of tax collection, only a small portion of big earners with black money have come forward. Either that or they have disclosed only a small portion of their hidden wealth. The amnesty scheme in the form of IDS would have charged lower penalty than that of tax evasion and was a voluntary scheme that allowed people to come forward and disclose their wealth and were offered only a penalty with no further prosecution.
6th October 2016
One of the Biggest Money Disclosure Ever in India Says Arun Jaitley
According to Finance Minister Arun Jaitley and the statistics released by his ministry it seems that indeed India has just experience one of the largest disclosures of black money worth Rs 65,250 crore assets that had been undisclosed but were declared in this year’s one-time compliance window, resulting the government to yield Rs 29,362 crore in tax money.
The complete manual and online filings of undisclosed assets are yet to be completed, the end of the four-month window that was supposed to end on September 30 has been completed with government liable to receive close to Rs 14,700 crore or the due tax amount halved in this period.
On the occasion of announcing Income Declaration Scheme Minister Jaitley also added that there were 64,275 declarants who disclosed assets worth Rs 65,250 crore.
4th October 2016
RBI directs banks to accept tax dues in cash under IDS-2016
The Reserve Bank of India has instructed banks to accept tax dues in cash under the Income Declaration Scheme, 2016. This scheme, which was introduced by the government to prevent taxpayers from hoarding black money in the country, closes on September 30, 2016.
Declarants under the scheme had notified the RBI that banks are hesitant in allowing large amounts of cash deposits. Following this, the central bank advised all banks to be open to large cash deposits under the scheme, including deposits made through challan ITNS-286. Banks would also need to comply with the ‘Know Your Customer’
13th September 2016
Income Declaration Scheme nears end
The Income Declaration Scheme provides an opportunity for taxpayers who did not disclose income or pay taxes in the past, to comply with tax regulations. This scheme enables them to declare undisclosed income and pay the corresponding tax, surcharge and penalty. The scheme, an initiative by the government to bring out black money from the economy, closes on 30th September, 2016.
The Income Tax Department, on its official Twitter handle, urged taxpayers to declare undisclosed income and pay taxes before the scheme closes. It also mentioned that taxpayers can utilise the internet based e-filing portal for declaring such assets in full secrecy, as details would not be shared with jurisdictional PCIT.
As per the scheme, the government has allowed declarants to pay tax and penalty in three installments; the first instalment to be paid by November 2016, the second by March 2017 and the final one to be paid to the exchequer by September 2017. The government had also introduced similar schemes for taxpayers with undisclosed income abroad.
13th September 2016
Cash deposits made after declaration under IDS not to attract penalties
The government has stated that adverse actions will not be taken by the Income Tax Department or the Financial Intelligence Unit if cash deposits are made consequent to income declaration, under the Income Declaration Scheme.
As per the proposal, credit for unclaimed TDS made on declared income will be allowed, and no TDS or capital gains tax will be levied on transfer of declared benami property. Also, the amount payable can be deposited in installments, and an option for valuation of registered immovable property has been provided. The period of holding of declared registered immovable assets shall be assessed based on the actual registration date.
The scheme enables individuals who have not paid full taxes in the past to now declare their undisclosed assets or income. The plan became effective on June 1, 2016 and is open to accept declarations till September 30, 2016.
8th September 2016