The Income Declaration Scheme, 2016 (hereinafter referred to as ‘the Scheme’) incorporated as Chapter IX of the Finance Act, 2016 provides an opportunity to persons who have not paid full taxes in the past to come forward and declare the undisclosed income and pay tax, surcharge and penalty totalling in all the 45% of such undisclosed income declared. CBDT has issued clarifications through various circulars till date. This article intends to concise all those circulars to understand the scheme more precisely.
Eligibility for the Scheme:
Question No.1: Whether the Scheme is open only to residents or to non-residentsalso?
Answer: The Scheme is available to every person, whether resident or non-resident.
Question No.2: Where a notice under section 142(1)/ 143(2)/ 148/ 153A/ 153C of the Income-tax Act has been issued to a person for an assessment year will he be ineligible from making a declaration under the Scheme?
Answer: The person will only be ineligible from declaration for those assessment years for which a notice under section 142(1)/143(2)/148/153A/153C is issued and the proceeding is pending before the Assessing Officer. He is free to declare undisclosed income for other years for which no notice under above referred sections has been issued.
Question No.3: Whether cases where summons under section 131(1A) have beenissued by the Department or letter under the Non-filer MonitoringSystem (NMS) or under section 133(6) are issued are eligible for theScheme?
Answer: Cases where summons under section 131(1A) have been issued by thedepartment or letters for enquiry under NMS or under section 133(6)are issued but no notice under section 142 or 143(2) or 148 or 153A or153C has beenissued are eligible for the Scheme.
Question No.4: If any proceeding is pending before the Settlement Commission, can aperson be considered eligible for the Scheme?
Answer: No, a person shall not be eligible for the Scheme in respect of assessment years for which proceeding is pending with SettlementCommission.
Question No.5: As per the Scheme, declaration cannot be made where an undisclosed asset has been acquired during any previous year relevant to an assessment year for which a notice under section 142, 143(2), 148, 153A or 153C of the Income-tax Act has been issued. If the notice has been issued but not served on the declarant then how will he come to know whether the notice has been issued?
Answer: The declarant will not be eligible for declaration under the Scheme where the undisclosed income relates to the assessment year where a notice under section 142, 143(2), 148, 153A or 153C of the Income-tax Act has been issued and served on the declarant on or before 31st day of May, 2016. The declarant is required to file a declaration regarding receipt of any such notice in Form-1.
Question No.6: If notices under section 142, 143(2) or 148 have been issued after31.05.2016 and assesse makes declaration under the Scheme thenwhat shall be the fate of these notices?
Answer: As clarified, aperson shall not be eligible for the Scheme in respect of theassessment year for which a notice under section 142, 143(2) or 148has been received by him on or before 1.5.2016. In a case wherenotice has been received after the said date, the assessee shall beeligible to make a declaration under the Scheme for the saidassessment year. Such declaration shall be valid if it has not beenmade by suppression of facts or misrepresentation and the amountpayable under the Scheme has been duly paid within the specifiedtime. On furnishing by the declarant the certificate issued by the Pr.Commissioner/Commissioner in Form-4 to the Assessing Officer, theproceedings initiated vide notice under section 142, 143(2) or 148 shallbe deemed to have been closed.
Question No.7: Can a declaration be made of undisclosed income which has been assessed to tax and the case is pending before an Appellate Authority?
Answer: As per section 189 of the Finance Act, 2016, the declarant is not entitled to re-open any assessment or reassessment made under the Income-tax Act. Therefore, he is not entitled to avail the tax compliance in respect of such income. However, he can declare other undisclosed income for the said assessment year which has not been assessed under the Income-tax Act.
Question No.8: Can a person against whom a search/ survey operation has been initiate, file declaration under the Scheme?
Answer: (a) The person is not eligible to make a declaration under the Scheme if a search has been initiated and the time for issuance of notice under section 153A has not expired, even if such notice for the relevant assessment year has not been issued. In this case, however, the person is eligible to file a declaration in respect of an undisclosed income in relation to an assessment year which is prior to assessment years relevant for the purpose of notice under section 153A.
(b) In case of survey operation the person is barred from making a declaration under the Scheme in respect of an undisclosed income in which the survey was conducted. The person is, however, eligible to make a declaration in respect of an undisclosed income of any other previous year.
Question No.9: Whether a person on whom a search has been conducted in April,2016 but notice under section 153A is not served upto 31.05.2016, iseligible to declare undisclosed income under the Scheme?
Answer: No, in such a case time for issuance of notice under section 153A hasnot expired. Hence the person is not eligible to avail the Scheme inrespect of assessment years for which notice under section 153A canbe issued.
Question No.10: Where a search/ survey operation was conducted and the assessment has been completed but certain income was neither disclosed nor assessed, then whether such unassessed income can be declared under the Scheme?
Answer: Yes, such undisclosed income can be declared under the Scheme.
Question No.11: Can a person declare under the Scheme his undisclosed income which has been acquired from money earned through corruption?
Answer: No. [As per section 196(b) of the Finance Act, 2016, the Scheme shall not apply, inter-alia, in relation to prosecution of any offence punishable under the Prevention of Corruption Act, 1988. Therefore, declaration of such undisclosed income cannot be made under the Scheme.]
However, if such a declaration is made and in an event it is found that the income represented money earned through corruption it would amount to misrepresentation of facts and the declaration shall be void under section 193 of the Finance Act, 2016. If a declaration is held as void, the provisions of the Income-tax Act shall apply in respect of such income as they apply in relation to any other undisclosed income.
Question No.12: Whether a person having undisclosed income in the form of an investment in immovable property in the name of his spouse can declare the fair market value of the property in his own name if the funds for acquisition of the said property were provided by such person?
Method of Computations/ Valuation for the Declaration made under the scheme:
Question No.1: In a case where the undisclosed income is represented in the form of investment in asset and such asset is partly from income that has been assessed to tax earlier, then what shall be the method of computation of undisclosed income represented by such undisclosed asset for the purposes of the Scheme?
Answer: As per sub-rule (2) of rule 3 of the Income Declaration Scheme Rules, 2016, where investment in any asset is partly from an income which has been assessed to tax, the undisclosed income represented in form of such asset will be the fair market value of the asset determined in accordance with sub-rule (1) of rule 3 as reduced by an amount which bears to the value of the asset as on the 1.6.2016, the same proportion as the assessed income bears to the total cost of the asset. This is illustrated by an example as under:
Investment in acquisition of asset in previous year 2013-14 is of Rs.500 out of which Rs.200 relates to income assessed to tax in A.Y. 2012-13 and Rs.300 is from undisclosed income pertaining to previous year 2013-14. The fair market value of the asset as on 01.06.2016 is Rs.1500.
The undisclosed income represented by this asset under the scheme shall be: 1500 minus (1500 X 200/500) = Rs.900
Question No.2: Land is acquired by the assessee in year 2001 from assessed incomeand is regularly disclosed in return of income. Subsequently in theyear 2014, a building is constructed on the said land and theconstruction cost is not disclosed by the assessee. What shall be thefair market value of such building for the purposes of the Scheme?
Answer: Fair market value of land and building in such a case shall becomputed in accordance with Rule 3(2) by allowing proportionatededuction in respect of asset acquired from assessed income.
Question No.3: Is it necessary to file a valuation report of an undisclosed income represented in the form of investment as Form-1 states “attach valuation report”. How to interpret?
Answer::It is necessary for the declarant to obtain the valuation report but it isnot mandatory for him to attach the same with the declaration madein Form-1.
However, the jurisdictional Pr. Commissioner/Commissioner in order to ascertain the correctness of the value of the asset quoted in Form-1 may require the declarant to file the valuationreport before issuing the acknowledgment in Form-2. In such acircumstance, it will be necessary for the declarant to make the reportavailable to the Pr. Commissioner/Commissioner.
Question No.4: Where the value of immovable property determined under Rule 3 ofthe IDS Rules is lower than the value adopted or assessed/assessableby stamp valuation authority referred in section 50C or section 43CAof the Income-tax Act, whether value of such property is to bedeclared as per Rule 3 of the IDS Rules, or as per section 50C/43CA?
Answer: The value of the property for the purposes of declaration in suchcases shall be computed as per Rule 3 of the IDS Rules even if suchvalue is lower that the value adopted or assessed/assessable bystamp valuation authority.
Question No.5: In case the value of immovable property is evidenced by registereddeed, whether the value as per registered deed or the market value ason 01.06.2016 is to be declared?
Answer: As per Rule 3 of the IDS Rules, the fair market value of an immovableproperty shall be the higher of its cost of acquisition and the price thatthe property shall ordinarily fetch if it is sold in the open market as on1st June, 2016. The value mentioned in the registered deed shall berelevant for determining the cost of acquisition and the same can betaken as the fair market value only where it is higher than the pricethat the property shall ordinarily fetch if sold in the open market ason 1st June, 2016.
Question No.6: In a case the declarant earned undisclosed income of Rs. 90 lakh inprevious year 2010-11. Out of the same, he acquired an immovableproperty in the previous year 2011-12 for Rs.50 lakh, made personalexpenditure to the extent of Rs.20 lakh and balance Rs.20 lakh is leftwith him as cash in hand on 01.06.2016. The fair market value of theimmovable property as on 01.06.2016 is Rs.80 lakh. What is theamount to be declared under the Scheme?
Answer: The declarant in this case has to declare the following:
(i) Rs. 80 lakh being fair market value of the immovable propertyas on 01.06.2016
(ii) Rs. 20 lakh being the cash in hand as on 01.06.2016
(iii) Rs. 20 lakh being the balance of undisclosed income [Rs. 90lakh – (Rs.50 lakh + Rs. 20 lakh)] which is not represented inthe form of investment in any asset.
Thus the total undisclosed income to be declared in this case will beRs. 1.20 crore.
Question No.7: Rule 3(1)(c)(I) of the Income Declaration Scheme Rules, 2016 provides for manner of determination of fair market value of quoted shares and securities. In this context, it may be clarified that if a share is listed on more than one recognised stock exchange and the quoted price of the share as on 01.06.2016 on the recognised stock exchanges is different, then what shall be the quoted share price for determining the fair market value of such share under the Scheme?
Answer: In such a case the quoted price of the share shall be computed with reference to the recognised stock exchange which records the highest volume of trading in the share as on 01.06.2016.
Question No.8: A person invested his undisclosed income in a house property in the previous year 2010-11 which has not been let out. The person alsoowned another house property from disclosed sources, which hasbeen claimed as self-occupied property for the purposes ofcomputation of income under the head income from house property.In case the person declares the undisclosed house property at its fairmarket value on 01.06.2016, whether any action will be taken forbringing the annual value of the undisclosed property to tax asincome from house property by deeming it to be let property asprovided under section 23(4)(b) of the Income-tax Act for the earlierprevious years?
Answer: No. However, where the house property was let-out during therelevant period, the actual rent received or receivable will be requiredto be declared under the Scheme in addition to the fair market valueof the house property as on 01.06.2016.
Proceeding/ Enquiry on the basis of Declaration:
Question No.1: Whether at the time of declaration under the Scheme, will the Principal Commissioner/Commissioner do any enquiry in respect of the declaration made?
Answer: After the declaration is made the Principal Commissioner/ Commissioner will enquire whether any proceeding under section 142(1)/143(2)/148/153A/153C is pending for the assessment year for which declaration has been made. Apart from this no other enquiry will be conducted by him at the time of declaration.
Question No.2: Where a valid declaration is made after making valuation as per theprovisions of the Scheme read with IDS Rules and tax, surcharge &penalty as specified in the Scheme have been paid, whether thedepartment will make any enquiry in respect of sources of income,payment of tax, surcharge and penalty?
Question No.3: With reference to above question, wherein it has been stated that the department will not make any enquiry in respect of sources of income, payment of tax, surcharge and penalty, it may be clarified that whether the payment under the Scheme can be made out of undisclosed income without including the same in the income declared, thereby bringing down the effective rate of tax, surcharge and penalty payable under the Scheme to around 31 per cent?
Answer: It is clarified that the intent of the clarification issued earlier was limited to conduct of enquiry by the Department. It in no way intends to modify or alter the rate of tax, surcharge and penalty payable under the Scheme which has been clearly specified in the Scheme itself. Sections 184 & 185 of the Finance Act, 2016 unambiguously provide for payment of tax, surcharge and penalty at the rate of 45 per cent of undisclosed income. This is illustrated by the following example-
In a case a person declares Rs. 100 lakh as undisclosed income, being the fair market value of undisclosed immovable property as on 1st June, 2016 and pays tax, surcharge and penalty of Rs.45 lakh (30 lakh + 7.5 lakh + 7.5 lakh) on the same out of his other undisclosed income. In this case the declarant will not get any immunity under the Scheme in respect of undisclosed income of 45 lakh utilized for payment of tax, surcharge & penalty but not included in the declaration filed under the Scheme. To get immunity under the Scheme in respect the entire undisclosed income of Rs.145 lakh, the declarant has to declare undisclosed income of Rs.145 lakh (Rs.100 lakh being the undisclosed income represented by immovable property and Rs.45 lakh being the payment made from undisclosed income) and pay tax, surcharge and penalty under the Scheme amounting to Rs.65.25 lakh i.e., 45 per cent of Rs.145 lakh.
Effect of Declaration/ Immunity under the scheme:
Question No.1: If a person declares only a part of his undisclosed income under the Scheme, then will he get immunity under the Scheme in respect of the part income declared?
Answer: It is expected that one should declare all his undisclosed income. However, in such a case the person will get immunity as per the provisions of the Scheme in respect of the undisclosed income declared under the Scheme and no immunity will be available in respect of the undisclosed income which is not declared.
Question No.2: Whether immunity from initiation of prosecution would be available to the Directors of the company or the partners of the firm in respect of the undisclosed income declared under the Scheme by the company or partnership firm, as the case may be?
Answer: Yes, immunity to the directors or the partners, as the case may be, shall be available in respect of the undisclosed income declared under the Scheme by the company or partnership firm.
Question No.3: The declaration made in respect of cash, investment etc. under the Scheme would result in increase in capital in the Balance Sheet in extra ordinary manner. Whether such cases of the declarants would be selected for scrutiny under the CASS for this reason?
Answer: The cases of the declarant shall not be selected for scrutiny under the CASS only on the ground that there is increase in capital in the balance sheet as a result of the declaration made under the Scheme.
Question No.4: In case a declaration relating to investment in undisclosed asset ismade under the Scheme, whether any investigation will be initiatedagainst the seller in respect of suchdeclaration?
Confidentiality of information contained in declaration made under the scheme:
Question No.1: Will the declarations made under the Scheme be kept confidential?
Answer: The Scheme incorporates the provisions of section 138 of the Income-tax Act relating to disclosure of information in respect of assessees. Therefore, the information in respect ofdeclaration made is confidential as in the case of return of income filed by assessees.
Question No.2: Will the information contained in the declaration be shared withother lawenforcement agencies?
Answer: No; the information contained in the declaration shall not be sharedwith any other law enforcement agency. The information will alsonot be shared within the Income Tax Department for anyinvestigation in respect of a valid declaration.
Question No.3: Whether immunity will be provided under other economic lawsincluding Service Tax, VAT, Companies Act, SEBI Act & regulationsetc.?
Answer: The Scheme provides immunity under the Income-tax Act, 1961, theWealth-tax Act, 1957 and the Benami Transactions (Prohibition) Act,1988. Immunity from Benami Transactions(Prohibition) Act is subjectto the condition that the property will be transferred to the declarant
(being the person who provided the consideration for the property)latest by 30th September, 2017. However, the information contained in the declarationmade under the Scheme will not be shared with any other tax or lawenforcement agency.
Question No.4: Under what provision can a declarant be sure that the information contained in a valid declaration shall not be shared with any other law enforcement agency and also shall not be shared within the income-tax department for investigation?
Answer: Section 195 of the Act provides that provisions of section 138 of the Income-tax Act shall apply in relation to the proceedings under the Scheme. Vide notification S.O. 2322(E) dated 06.07.2016, an order has been passed by the Central Government directing that no public servant shall produce before any person or authority any such document or record or any information or computerized data or part thereof as comes into his possession during the discharge of official duties in respect of a valid declaration made under the Scheme.
Consequences of Non declaration:
Question No.1: What are the consequences if no declaration under the Scheme is made in respect of undisclosed income prior to the commencement of the Scheme?
Answer: As per section 197(c) of the Finance Act, 2016, where any income has accrued or arisen or received or any asset has been acquired out of such income prior to the commencement of the Scheme and no declaration is made under the Scheme, then such income shall be deemed to have been accrued, arisen or received or the value of the asset acquired out of such income shall be deemed to have been acquired in the year in which a notice under section 42/143(2)/148/153A/153C is issued by the Assessing Officer and the provisions of the Income-tax Act shall apply accordingly.
Question No.2: If an undisclosed income represented in the form of an asset or otherwise pertains to a year falling beyond the time limit allowed under section 149 of the Income-tax Act, 1961 and the said undisclosed income is not declared under the Scheme, then as per the provisions of section 197(c) of the Finance Act, 2016, the said undisclosed income shall be treated as the income of the year in which a notice under section 148 of the Income-tax Act has been issued. The said provision is inconsistent with the existing time lines provided under the Income-tax Act for reopening a case. Please clarify?
Answer: Since the Scheme contained in Chapter IX of the Finance Act, 2016 is a later law in time, the provisions of the Scheme shall prevail over the provisions of earlier laws & hence it will have an overriding effect to other sections of Income Tax Act.
Question No.3: If undisclosed income relating to an assessment year prior to A.Y.2016-17, say A.Y. 2001-02 is detected after the closure of the Scheme,then what shall be the treatment of undisclosed income so detected?
Answer: As per the provisions of section 197(c) of the Finance Act, 2016, suchincome of A.Y. 2001-02 shall be assessed in the year in which thenotice under section 148 or 153A or 153C, as the case may be, of theIncome-tax Act is issued by the Assessing Officer. Further, if suchundisclosed income is detected in the form of investment in any assetthen value of such asset shall be as if the asset has been acquired ormade in the year in which the notice under section 148/153A/153C isissued and the value shall be determined in accordance with rule 3 ofthe Rules.
Question No.4: If a declaration of undisclosed income is made under the Scheme and the same was found ineligible due to the reasons listed in section 196 of the Finance Act, 2016, then will the person be liable for consequences under section 197(c) of the Finance Act, 2016?
Answer: In respect of such undisclosed income which has been duly declared in good faith but not found eligible, then such income shall not be hit by section 197(c) of the Finance Act, 2016. However, such undisclosed income may be assessed under the normal provisions of the Income-tax Act, 1961.
Question No.5: What are the advantages of the Scheme as against declaring the pastundisclosed income as current income in the return of income to befiled for Assessment Year 2017-18? How will the Department identifythe year in which the undisclosed income was earned.
Answer: In this regard, the following points may be noted:
- Declaration of past undisclosed income in the current year amounts to false verification of return of income which shall attract prosecution under the Income-tax Act.
- If anyone attempts to disclose past undisclosed income in the current year, he will have to explain the source of income and substantiate the manner of earning the said income. In case of disclosure under the Scheme, there is no need to explain the source of income.
- Declaration of past undisclosed income in the current year cannot explain assets acquired in the past or provide any immunity in respect of the same.
- The Income-tax Department is in receipt of large volume of information from various sources such as registrars of property, banks, financial institutions, stock exchanges, tax deductors etc. The Department has launched a comprehensive data-mining and compliance management programme in the form of ‘Project Insight’ which will generate a large volume of reliable information about financial transactions undertaken by taxpayers and the relevant year in which the transaction wasundertaken.
Payment of Tax on Income declared under the scheme:
Question No.1: Whether credit for tax deducted, if any, in respect of income declaredshall be allowed?
Answer: Yes; credit for tax deducted shall be allowed only in those caseswhere the related income is declared under the Scheme and the creditfor the tax has not already been claimed in the return of income filefor any assessment year.
Question No.2: If only part payment of the tax, surcharge and penalty payable on undisclosed income declared under the Scheme is made before 30.11.2016, then whether the entire declaration fails as per section 187(3) of the Finance Act, 2016 or pro-rata declaration on which tax, surcharge and penalty has been paid remains valid?
Answer: In terms of Press release issued by the board on 14th of July 2016, the time schedule for making payment under the scheme will be as follows:
- a minimum amount of 25% of the tax, surcharge and penalty to be paid by 30.11.2016
- a further amount of 25% of the tax, surcharge and penalty to be paid by 31.3.2017; and
- the balance amount to be paid on or before 30.9.2017.
Therefore in case of part payment ofan amount which is less than 25%, on or before 30.11.2016, the entire declaration made under the Scheme shall remaininvalid.
Question No.1: In case of amalgamation or in case of conversion of a company into LLP, if the amalgamated entity or LLP, as the case may be, wants todeclare for the year prior to amalgamation/conversion, then whethera declaration is to be filed in the name of amalgamated entity/LLP orin the name of the amalgamating company or company existing priorto conversion into LLP?
Answer: Since the amalgamating company or the company prior to conversioninto LLP is no more into existence and the assets/liabilities of sucherstwhile entities have been taken over by theamalgamatedcompany/LLP, the declaration is to be made in the name of theamalgamated company or the LLP, as the case may be, for the year inwhich the amalgamation/conversion takes place.
Question No.2: Is it mandatory to furnish PAN in the Form of declaration?
Answer: Yes, PAN is the unique identifier for all direct tax purposes. This is alsonecessary in order to claim the benefits and immunities available under theScheme.
Question No.3: Whether there is any time limit for the declarant under the Scheme to file Form-3?
Answer: As per section 187(2) of the Finance Act, 2016, the time limit for filing Form-3 is same as the time limit notified for payment of tax, surcharge and penalty under the Scheme.
Question No.4: Can a declaration made under the Scheme be revised before the date of closure of the Scheme i.e. 30.09.2016?
Answer: It is expected that the declarations made under the Scheme are filed correctly. However, a revised declaration can be filed on or before the date of closure of the Scheme provided the undisclosed income in the revised declaration is not less than the undisclosed income declared in the declaration already filed.
Question No.5: What is the purpose of obtaining the information about the nature ofundisclosed income in the last column of table at point (I) relating tonature of undisclosed income in Annexure to Form-1?
Answer: The purpose of obtaining information about the nature of undisclosedincome is to know whether the undisclosed income is in the form ofmoveable asset, immovable asset, gold, jewellery or cash. Here, thenature of income need not be confused with the source of income.There is no need to indicate the source of income at all. In the columnmeant for nature of undisclosed income one has to write thenomenclature such as ‘immovable property’, ‘moveable property’,‘gold’, ‘jewellery’ or ‘cash’ etc. This will enable the taxpayer toestablish the link between the income declared under the scheme and the claim, if any, made in respect of such undisclosed income in thereturn of income filed subsequently or during any assessmentproceedings.
Question No.6: In a case where the declarant gets the benami asset transferred in his name without payment of any monetary consideration to the benamidar, whether capital gains would be chargeable in the hands of benamidar consequent upon such transfer and whether the tax at source @ 1% would be deducted in such case?
Answer: In this case the consideration for acquisition of benami property has already been paid by the beneficial owner and the fair market value of the property has been declared by the beneficial owner under the Scheme. Since, the transfer of property from benamidar to beneficial owner is only to regularize and there will be no involvement of monetary consideration for transfer of immovable property by the benamidar in the name of the declarant, the question of capital gains in the hands of benamidar and deduction of tax at source thereon shall not arise.
Question No.7: Where an undisclosed income in the form of investment in asset is declared under the Scheme and tax, surcharge and penalty is paid on the fair market value of the asset as on 01.06.2016, and then will the declarant be liable for capital gains on sale of such asset in the future? If yes, then how will the capital gains in such case be computed?
Answer: Yes, the declarant will be liable for capital gains under the Income-tax Act on sale of such asset in future. As per the current provisions of the Income-tax Act, the capital gains is computed by deducting cost of acquisition from the sale price. However, since the asset will be taxed at its fair market value the cost of acquisition for the purpose of Capital Gains shall be the fair market value as on 01.06.2016 and the period of holding shall start from the said date.
Source: CBDT Circular Nos. 17, 24, 25, 27 of 2016.
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