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Income Declaration
Scheme, 2016 Critical
Analysis
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The Government has introduced a scheme "Income Declaration
Scheme, 2016" which has come into force from 1st June, 2016.
The scheme provides an opportunity to persons who have not
paid due taxes in the past to come forward and declare the
undisclosed income and pay tax, surcharge and penalty totaling
in all to 45% of such undisclosed income declared.
The initial response of the tax payers and tax consultants
regarding the scheme has not been encouraging. The present
scheme is quite stringent in comparison to earlier scheme of
Voluntary Disclosure of Income Scheme (VDIS) introduced by the
government in the year 1997. Tax on undisclosed income is
required to be paid @ 45% under the present scheme while
under VDIS, 1997 the rate of tax was 30% of the undisclosed
income. Moreover, under VDIS, 1997 income was to be declared
at the cost incurred in acquiring the undisclosed asset while
under the present scheme, Fair Market Value (FMV) of the
undisclosed asset as on 1st June, 2016 is required to be declared
as undisclosed income on which tax @ 45% is to be paid.
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The scheme, in our considered opinion, has infirmities and ambiguities relating to various issues.
Though CBDT has issued three sets of frequently asked questions (FAQs) containing 36
clarifications relating to various aspects during last one month still certain doubts persist and
the tax payers are not able to gather courage and confidence so as to opt for the scheme. There
are certain other provisions in the scheme which make it less lucrative which have been
discussed by us in this article.
IF INCOME IS DECLARED BUT UNDERLYING ASSET IS NOT DECLARED, SUCH ASSET MAY
STILL BE TREATED AS UNDISCLOSED:
As per the present scheme, a person has to make declaration of undisclosed income chargeable
to tax which was not disclosed by him earlier in the Income Tax Return(s). In case undisclosed
income is in the form of investment in any asset, the Fair Market Value (FMV) of such asset as on
1st June, 2016 shall be deemed to be the undisclosed income.
In case, say, a person earns Rs. 1 crore through unaccounted sales during A.Y. 2010-11 and such
amount was utilized & invested by him in acquiring a residential property. As on 1st June, 2016,
the Fair Market Value (FMV) of the property is, say, Rs. 2 Crores. As per the present scheme,
such person is required to make declaration of Rs. 2 crores being the Fair Market Value (FMV) of
the property as on 1st June, 2016. In case declaration of only Rs. 1 crore of undisclosed income
as profit on unaccounted sales is made and later on if such person pleads that the above
property Care
has been
acquired out of the declared undisclosed income as above and
explains the
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Form 1 in which declaration is to be made contains annexure in which statement of
undisclosed income is to be given which also requires that in case any part of undisclosed
income is in the form of investment in asset, the Fair Market Value (FMV) of the asset as on
1st June, 2016 is required to be declared and tax @ 45% is to be paid on the above amount.
SECRECY OF DECLARATION:
There is no clarity under the scheme as to the consequences which may fall under other
Laws such as: Excise Act, VAT Act, Service Tax Act, Companies Act etc. relating to declaration
of undisclosed income made.
It is important to note that most of the provisions of the Income Declaration Scheme, 2016
have been drafted in the same manner as the provisions of Voluntary Disclosure of Income
scheme, 1997 (VDIS, 1997) subject to the amendments or changes which were intended to
be made in the present scheme. However under Voluntary Disclosure of Income scheme,
1997 (VDIS, 1997), there was a provision regarding secrecy of declaration which is altogether
missing in the present scheme. Such provision under VDIS, 1997 was as under:
Secrecy of declaration
1.All particulars contained in a declaration made under sub-section (I) of section 64 shall be
treated as confidential and, not withstanding anything contained in any law for the time being
in force, no court or any other authority shall be entitled to require any public servant or the
declarant
to produce
before it any such declaration or any part thereof or to www.taxmann.com
give any evidence
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2.No pubic servant shall disclose any particulars contained in any such declaration except to any
officer employed in the execution of the I-T Act or the Wealth-tax Act, or to any officer appointed
by the Comptroller and Auditor-General of India or the Board to audit I-T receipts or refunds.
Moreover, the provision stating that the declaration under the scheme not to be admissible in
evidence against the declarant which in a sense provides for immunity from penalty &
prosecution, has also been restricted only under the Income Tax Act or the Wealth Tax Act under
the present scheme while such immunity was available under VDIS, 1997, under Foreign
Exchange Act and under Companies Act, 1956 as well.
The absence of clause regarding secrecy of declaration in the present scheme does not instill the
necessary confidence regarding the use of the information given in the declaration by any other
Authority.
Though Finance Minister, Mr. Arun Jaitely has repeatedly stated during his interaction with
professionals and with Media persons that the particulars contained in the declaration made
under the scheme shall be treated as confidential but only such verbal assurance is not
sufficient to gain the confidence of the declarants. Such provision should have been
incorporated in the scheme itself.
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