Customer Care No.

91-1145562222

Halfhearted approach in
proposing the Income
Declaration Scheme, 2016
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The Finance Minister in his Budget Speech on 29thFebruary,
2016 surprised all by introducing the Income Declaration
Scheme, 2016 which is proposed to come into effect from
1stJune, 2016. For persons who have not paid full taxes in
the past, the Scheme provides a one-time window to come
forward and declare the undisclosed income of any financial
year upto 2015-16 and pay tax, surcharge and penalty
aggregating to 45% of such undisclosed income declared.
The FM has indicated in his Budget Speech that the window
will be open from 1st June till 30th September, 2016 with an
option to pay amount due within two months of declaration.
Post Budget the FM has mentioned that the four-month
compliance window for domestic black money holders is not
a VDIS (Voluntary Disclosure of Income Scheme) and it is not
an amnesty scheme. Interestingly the FM has used the
phrase
'past
trangressions'
recognising
the
past
wrongdoings of tax evaders and offer them an exit door on
payment of 45% of undisclosed income. Such persons would
further enjoy immunity from prosecution under Income Tax
Act, Wealth
TaxNo.
Act,
and Benami Transaction (Prohibition)
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Care
91-11-

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1. Backdrop and comparison of present
Scheme with some aspects of VDIS, 1997:
It would be relevant to mention that the prime
reason for accumulation of black money has been
the fact that our country had the maximum tax rate
of 97.75% (tax @ 85% plus surcharge @ 15%) in
seventies. That means a person declaring income of
Rs. 10 Lakhs in those years was required to pay tax
of almost Rs. 9,77,500/- only (if we ignore the initial
exemption limit). In addition to that one was
required to pay wealth tax. Now the maximum rate
of tax is 30% plus education cess of 3% plus
surcharge in some cases which is much reasonable
to the tax rates in 1970's. The present Income
Disclosure Scheme, 2016 announced in Budget,
2016 has some positive aspects as well as some not
so positive aspects if we compare with the Voluntary
Disclosure of Income Scheme, 1997 (VDIS) declared
for Indian tax payers. The rate of tax payable under
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2. Declaration of Undisclosed income and Fair Market Value of asset to be taxed [clause 180 of
the Bill]: On or after the date of commencement of the Scheme but before a date to be
notified by the Central Government, any person may make a declaration in respect of any
income chargeable to tax under the Income-tax Act for any financial year up to 2015-16:
(a)which he has failed to furnish a return u/s 139 of the Income-tax Act;
(b) which he has failed to disclose in a return of income furnished by him under the Incometax Act before the date of commencement of this Scheme;
(c) 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.
Where the income chargeable to tax is declared in the form of investment in any asset, the
fair market value of such asset as on the date of commencement of this Scheme shall be
deemed to be the undisclosed income. The fair market value of any asset shall be determined
in such manner, as may be prescribed. No deduction in respect of any expenditure or
allowance shall be allowed against the income in respect of which declaration under section
180 of the Finance Bill, 2016 is made.
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In all likelihood, the Fair market valuation (FMV) rules will be determined in sync with the
Determination of FMV Rules as prescribed for the purposes of sec. 56(2) of the Income Tax Act,
2961 and/or the Black Money Act, 2015. The FMV as on 1st June, 2016 is likely to be much more
than the actual cost of any asset acquired by prospective declarant and may result into ultimate
heavy tax burden. The people may not be so attracted to disclose the income under this
scheme and the requirement of charging tax on present value of the asset may caste shadow
on the very success of the Scheme and due. In other words, the Scheme needs to be modified
to make it practical. Where the declarant has sufficient proof of acquiring an asset in past years
at a certain amount, such amount only should be considered for levy of tax and penalty
aggregating to 45 per cent and not the current fair market value. The tax on current FMV is not
practical as the liquidity problem will also arise and making payment of the tax under the
Scheme, will be almost impossible in some cases.
For example, if a person purchased, a self-occupied house in Mumbai for Rs. 1 crore in year
1995 and its present fair market value is Rs. 20 crores, the aggregate tax payable under the
Scheme will be Rs. 9 crores. It may not be possible for the person to organize such a huge
amount to pay under the one time compliance window scheme as the amount payable is very
high and secondly he may not have the liquidity of funds. Therefore the Government will do well
if the Scheme
is suitably
on the
Customer
Care No.
91-11- modified to provide that the tax and penalty will be payable
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