Halfhearted approach in proposing the Income Declaration Scheme, 2016

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Customer Care No. 91-11-45562222
Halfhearted approach in proposing the Income
Declaration Scheme, 2016
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• The Finance Minister in his Budget Speech on
  29th February, 2016 surprised all by introducing
  the Income Declaration Scheme, 2016 which is
  proposed to come into effect from 1st June, 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 Tax Act, and Benami Transaction
  (Prohibition) Act, 1988. As per our FM, the
  Government is fully committed to remove black
  money from the economy. The Scheme as mentioned
  in clauses 178 to 196 of the Finance Bill, 2016
  (in short referred as the 'Bill') is analysed
  hereunder

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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 _at_ 85 plus surcharge _at_ 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 the
  present scheme is 45 per cent (tax _at_ 30 plus
  surcharge 7.5 plus penalty 7.5) which is 1.5
  times of the tax payable under VDIS, 1997. It may
  be noted there was no penalty in case of VDIS.

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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 Income-tax
  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 modified to provide that
  the tax and penalty will be payable on the basis
  of cost of immovable properties as well as other
  assets. Under VDIS tax was payable on the cost of
  the asset for the year in which it was acquired.
  However, in case of declaration of jewellery
  value was to be adopted as per market value as on
  1.4.1987.

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