The scheme is basically brought as a last opportunity to declare black money and the wealth to see a black money free economy in our country in the coming time. The scheme proposes reasonable taxation of 45 % which is only 15 % more than the highest slab prevailing in the country. The rules and regulations of the scheme is yet to come out and the success of the scheme mostly depends on the practical point of view of aspirant, immunity warranty, friendly behavior of the department, the role of advisors and the consultants, set of FAQ covering all types of assessee having different asset class and standing etc and the practical workability from each level. The submission here may be summarized as under:
- HIGHLIGHTS OF THE SCHEME
- OBSERVATIONS ON THE SCHEME
- LIKELY PROBLEMS
- DOUBTS OF THE ASPIRANT OF THE SCHEME
HIGHLIGHTS OF THE SCHEME
Before discussing various aspects of the scheme including suggestions, I would like to highlight the broad elements of the scheme as under:
- Authority – finance act 2016
- Name of the scheme - “the income declaration scheme, 2016”
- Applicability date – 1-6-2016 to 30-9-2016 or extended date, if any
- Applicable to whom – all persons as per section 2(31) of IT act
- Load of taxes etc - 45 % flat of declared income
- Who are not eligible – for already pending cases, foreign information income, unlawful income
- Date of valuation of asset under declaration – 1-6-2016
- Method of valuation – to be prescribed
- Any deduction – no deduction, including expenditure connected to declared asset ,if any
- Opportunity for declaration – one person one opportunity only, no multiple declaration
- Time for payment of tax – within 2 months from the date of declaration.
- Failure to pay tax – declaration void and the declared income will be part of income of the asst year 17-18 and consequences of on concealed income.
- Clubbing with regular income – no clubbing with ordinary regular income of ay 17-18.
- Immunity – from wealth tax declared up to 31-3-2015, for income tax of earlier year no question –full immunity
a. From the practical point of view there are certain problem areas which requires attention of all concerned -
b. The persons who file return of income and since the filing of balance sheet was not obligatory therefore it will be difficult for the person himself that what is black and what is white. Most of the persons has not shown adequate withdrawals and used the money for wealth creation in those cases also it will be not easy to tackle the issue. What will be the status in the post scheme period?
c. The concealed wealth in immovable properties runs in Crores. The scheme wants tax payment on the present market value within two months which is impossible as the property cannot be liquidated and all the persons may not have extra liquidity. The scheme is therefore not workable from this point of view.
d. The segment of bogus entries, bogus stock, bogus shares, bogus borrowings, bogus jack up of fixed asset prices etc may like to come forward to declare the real income part of that but since the borrowings and the asset value both are bogus, the real income part may be less and would like to have fair proposition in the scheme otherwise this segment may also not be comfortable.
e. Disputed wealth in the family, disputes with the land owner, tenanted property, encumbered property etc valuation may also be difficult and a rational approach will be necessary.
f. Valuation of jewellery with the jeweler will also be a major issue and the aspirant of the scheme may not be comfortable.
g. Guideline mismatch where the guideline is much more than actual price will also be problem.
h. Problem of beneficial owner and ostensible owner will also be there.
i. Jewellery received from the ancestors is not the part of earned income and if a person wants to declare the same for peace in future then what exemption he may get is one of the major issue.
j. Benami property held in the name of non existing persons or dummy persons will have title problem and in spite of willingness to bring the same into tax net the person may not be comfortable with the scheme.
k. The department does not have systematic record to find out overall income of the carrier life of a business man and the business man will say that it was declared and produce his documents, registry etc.
l. After the scheme it will be very difficult for the department to find out, assess and distinguish the genuine and ungenuine cases and again the same story of litigation, setting, harassment etc will continue
DOUBTS OF THE ASPIRANT OF THE SCHEME
Keeping in view all the above problems and doubts etc I made certain case studies on the basis of various questions, apprehensions, doubts raised by peoples. The following examples are indicative and may be further extrapolated from the point of view of post scheme period when the system may demand proof of the wealth. Case studies improvised are as under:-
a. There is a farmer or a kisan . He got certain land from his father. He sold some land which is beyond municipal limit for a sum of rs 50 lacs in 2008 having a guideline value of Rs 15 lacs only and understood that all money he has received is ok without recourse to black and white terminology. He purchased a house in the nearby city for a sum of Rs 50 lacs of which stamp duty value was 25 lacs. He is not income tax payee. That house has a value of rs 1 Crores today or on 1-6-2016. He wants to be a tax compliant as he is thinking of sale of the house in the FY 17-18. How he will be able to take advantage of the scheme and what should be the declaration amount.
b. There is a slum dweller in Mumbai. He got the kholi in his name. No registered title. Only notary is there. He purchased the kholi in 5 lacs before 20 years. He is not able to prove the then sources of income .Today the value of that kholi is rs 75 lacs. He is a tax payer drawing salary of rs 4 lacs per annum. He wants to be a tax compliant. How he can take advantage of the scheme.
c. There is a family having two brothers. They got certain jewellery from the forefathers in the year 2001 where the value of the jewellery was rs 30 lacs only. In the year 2013, on division each of the two brothers got 50% jewellery the present value of the said jewellery is rs 1 Crores worth each. They further divided the jewellery to their 4 children’s @ rs 30 lacs each. And retained the balance equally. They are all income tax payee. They never filed their wealth tax return. Whether they are required to declare. Suppose they like to sale the said jewellery in future which fetch the value of rs 50 lacs to each then what will be the treatment of the resultant income / capital gain etc and what proof the department may ask that time. Whether that will be treated as black money after the scheme.
d. There is a person who purchased certain physical shares of a listed company in the year 1995. The shares are held with him alongwith blank transfer deed but not transferred in his name. He paid a sum of Rs 15 lacs for the same that time out of his savings and some undeclared source of income. The shares are still held in physical form as it is. The value of those shares today is Rs 2 Crores. But since he do not know who was the seller and also he is not able to get new transfer deed in his name and therefore he is not able to get it officially transferred in his name and get the same dematerialized. He wants to take advantage of the scheme. He is telling that had he got the transfer done in his name then there would have been exemption of capital gain and no tax. He should be taxed only at the most for rs 15 lacs that is the actual cost of purchase of shares. What is the solution under the scheme or consequences after the scheme?
e. There is a person who has taken entries of Rs 10 Crores in his p ltd company for his business. The entries were taken in the year 2008. Due to bad business he incurred loss and the industry became sick. The loss is 12 Crores. He wants to clean the balance sheet. The entry providers are not traceable. He wants to write off the same in the FY 16-17. If he opts to write off those entries and offer income then because of losses there will not be any tax. Mat will also be not there as the industry is sick. What will be his treatment after the end of the scheme date i.e. 30-9-2016?
f. There is a property which was purchased in the year 1985 for an amount of rs 5 lacs. The source of money that time was certain savings, certain sale of gold and some hundi chitthi loan which was later on repaid. The stamp duty value of the said property is now worth rs 3 Crores. But there is an unofficial kabja of a bad person and due to that the actual realizable value of the property has come down to rs 1 Crores. The person wants to take advantage of the scheme. He is normal tax payer but not filed his wealth tax return. Is he required to make declaration under the scheme?
g. There is a person who purchased 100 acre agricultural land out of the municipal limit in the year 1990. For an actual amount of rs 50 lacs and registry value of rs 10 lacs. The source of these rs 10 lacs was rs 1 lacs out of sale of his old ancestral house in the village and rest out of his undeclared income from business. 50 % of the said land is now urban land and 50% is still rural. The value of the urban land is now rs 50 Crores. He recently filed his return of income but not filed his return of wealth. He wants to take advantage of the scheme.
h. There is a joint family of 30 peoples. They are all income tax payers and filed their regular return of tax declaring marginal taxable income. They did not file their wealth tax return as they do not fall in the same. Since last 30 -40 years they are running cloth business and purchased lot of property in their name either individually or jointly. Since there was no requirement in the law of income tax to file any balance sheet therefore they are not in a position to establish that they purchased the said properties in which year and from which sources. They say that they have purchased the same out of their regular savings. They are asking that since there was no platform to show the properties anywhere in the taxation system therefore in future whether their properties will be treated as declared properties or will be subject to departmental questions. The present value of properties is more than rs 200 Crores. Remedy?
i. There is person who has circulated rs 100 lacs on hundi chitthi in the market. He has given the same in number -2. Let suppose he want to declare the same but the borrowers are not ready. Further he is doubtful of the 100 % recovery of the same. In the circumstances what is the remedy to him.
j. There is a person who bought certain agricultural land on unregistered power of attorney and paid a sum of rs 300 lacs there against from time to time. The actual value of land was rs 5 Crores but the guideline value was rs 10 Crores as the same was artificially jacked up by the local area people and system for eligibility of more loans from banks. The land owners already took loan on their agricultural land in the kisan credit card as per guideline value which was more than 5 Crores and now not traceable. The subject land cannot now be officially registered as physical presence of the seller is necessary. Some of the above land has become urban. The overall value of the said land is now around 20 Crores. The person wants to declare his rs 300 lacs in the scheme. What is the remedy?
k. A person established an industry. For the purpose of more loan and subsidy he inflated the value of property plant and equipment to the tune of rs 25 Crores. Against this inflation of rs 25 Crores rs 5 Crores gone in the form of excise tax etc and he got rs 20 Crores cash. 75% of the said inflated value was financed from bank and for the rest he took some 6 Crores worth entries. He is asking that out of the over invoiced money I obtained cash and paid these rs 6 Crores for obtaining entries. The rest 14 Crores , I spent rs 2 Crores for marriage of my daughter and rest 12 Crores I utilized for purchase of a farm house situated out of the municipal limit for which i have not filed any wealth tax return and the same is also not on the record of income tax anywhere . That house property has present guideline value of rs 25 Crores. The industry has become sick and i am not able to pay to the bank and creditors. The entry providers are not traceable. My house is also mortgaged to the bank. My financial status as of now is not comfortable. But the acts and deeds I have done will surface somewhere in the eyes of the department. I want to settle and want peaceful life. What is the solution for me in the scheme and if I do not do anything in the scheme then what will be my status after the scheme. Remedy?
l. 10 kg gold is in locker. Dispute in two brothers therefore the locker is not opened and gold cannot be sold. No liquidity. One of them wants to declare. What he should do under the scheme.
m. In a company before 15-20 years a public issue was brought. For the minimum subscription the issue was shown fully subscribed and the gap of unsubscribed portion was filled up by allotment of shares in bogus names using black money of promoter. The face value of such allotment was rs 1 Crores. The promoter wants to declare the same as his own money. The book values of those shares are 20 Crores whereas the shares of the company got delisted as the company was listed in regional stock exchange which is no more there. Against the book value there is pending provision of certain liabilities worth rs 10 Crores consisting of forex loss, bad debts, adjustment of impairment in fixed assets, and devaluation of old stocks. What will be the value in the declaration and how the person will bring those shares in his account in mca records?
n. A businessman doing business since last many years. He filed his return of income in the presumptive taxation as 8 %. He purchased some plots in cash in a colony for rs 50 lacs. He says that he earned officially and paid that money. The values of plots are 3 Crores now. He is asking that whether those plots will be treated as black money?
a. Normal man earns money consume some of its part and save the rest. He invests the money in immovable properties, gold ornaments and jewellery, securities, money lending, bank and some part in cash. Since there was no obligation to file balance sheet therefore it is not possible for him to establish the year on year savings and investments.
b. So far as securities , bank deposits, mutual funds or other capital market instruments are concerned most of the wealth has already been unearthed with the help of AIR u/s 285BA therefore liquid assets are very few and therefore the chances of collection of tax from the liquid asset is negligible.
c. For cash and bullion it is easy for a man to make up mind for declaration because he may not face liquidity problem. He may pay the tax in time and remain happy from the scheme.
d. But in case of immovable property he does not have liquidity because it is not easily salable therefore even if he wants to declare he will not be able to discharge the obligation to pay the taxes and therefore the scheme is not workable for them
e. For bogus entries in the form of inter-corporate deposits, in the form of bogus allotment of shares, inflated value of stock for more bank loan or for managing the bank loan, bogus debtors to maintain book profits, the interconnected problems of declaration value and its ultimate treatment in the books keeping accounting standards, company law provisions benami properties act provisions etc will be there. Most of them want to get rid of all this fargiwada but besides income tax many other problems will be there. The scheme should bring some solutions for them
a. The person should be given an opportunity to table all his assets and its source of income by way of furnishing his statement of affairs or balance sheet. He or his advisor will assess his source of income of his entire carrier and find out what is excessive and that excess should be the subject matter of the scheme.
b. From the point of view of each asset class a example based FAQ should be meticulously prepared with the consequences after the scheme period. Examples of Those who are not covered should also be there. I have given examples of all asset class hereinabove which may further be permuted to a large scale.
c. I suggest to classify the level of assessee like persons who has not filed return but has wealth, the persons who filed the returns but do not have systematic record yoy to establish sources, persons who offered income on presumptive taxation, persons who has bogus entries in the books etc. further the problem of each asset class should be there like cash, bullion, securities, unlisted securities, immovable properties, jewelleries, excess stock etc.
d. For cash and bullion a period of 2 months is ok but for immovable properties and other assets the period should be comfortably increased otherwise due to liquidity problem the peoples may not trigger the scheme
e. For cleaning the balance sheet of corporate, the bogus entry should be considered against the asset created and cross adjustment criteria should be there.
f. For bogus shares in the market of the listed company book value or market value or average of the two should be considered. More time should be given for payment of taxes. Other laws should be liberalized or ignored.
g. In the business the chances of less turnover, evasion of custom, excise, sales tax etc cannot be ruled out. If a businessman declares income then obviously other department like excise, custom, sales tax, service tax will also raise doubt that there revenue is also lost and they may create problems. In the circumstances the scheme should clear cut declare that in spite of all odds if a person comes and declare the income no other department will raise any question and immunity will be there.
h. As per the steps of the government it is likely that after the scheme the government will take strict action on the defaulting persons but how and what it will do should also be covered in the FAQ. Because it is not feasible to map complete asset class as per the present government system. The government does not have true and full data base on e platform to cross check the immovable properties held but not declared by the liable persons. Unless that is there again huge amount of undeclared wealth will be there which will damage the concept of black money free economy.
i. Make compulsory the dematerialization of all Pvt ltd co shares other than small company. This will unearth all bogus shares automatically and the system itself will find out the undeclared wealth.
j. The valuation of gold ornaments and jewellery should be on presumptive basis. A normal person having gold ornaments and jewellery worth 30 lacs should be given clean chit but he should be allowed to declare for the record purpose and for his future peace. This is some sort of threshold to each person as the gold ornaments and jewellery is the traditional asset coming from generation to generation.
k. Persons who are holding agricultural land and other immovable properties in the bogus name should also be given chance to declare the same subject to counter civil claim or any dispute by any party in future who claims that the property actually belongs to him. This scheme object should be to allow those persons to bring all their undeclared wealth in the tax net to create a black money free economy.
l. The peoples who wants to declare their wealth held in the form of antiques, paintings, house hold goods, interior of the house, etc should also be given opportunity to declare lumpsum and allowed to show the same in their books.
m. The filing of balance sheet should be made compulsory for all tax payers hereafter.
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