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Income Disclosure Scheme 2016 (IDS 2016) - An Opportunity

Yogesh Agarwal 
on 12 September 2016

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Income Declaration Scheme 2016 which is famously known as IDS 2016. IDS 2016 is an Opportunity to the Tax Evaders. This small attempt has been made to analyze the various aspect of this Scheme. This article is not based on the technicality of the scheme section by section but in simple way to make one understood that this is an opportunity to clean the hand.

Let us commence with the speech of our Finance Minister which he delivered in the budget at the time of presenting this scheme to the Parliament.

“159. We are moving towards a lower tax regime with non-litigious approach. Thus, while compliant taxpayers can expect a supportive interface with the department, tax evasion will be countered strongly. Capability of the tax department to detect tax evasion has improved because of enhanced access to information and availability of technology driven analytical tools to process such information. I want to give an opportunity to the earlier non-compliant to move to the category of compliant.

160. I propose a limited period Compliance Window for domestic taxpayers to declare undisclosed income or income represented in the form of any asset and clear up their past tax transgressions by paying tax at 30%, and surcharge at 7.5% and penalty at 7.5%, which is total of 45% of the undisclosed income. There will be no scrutiny or enquiry regarding income declared in these declarations under the Income-tax Act or the Wealth-tax Act and the declarants will have immunity from prosecution. Immunity from Benami Transaction (Prohibition) Act, 1988 is also proposed subject to certain conditions. The surcharge levied at 7.5% of undisclosed income will be called Krishi Kalyan Surcharge to be used for agriculture and rural economy. We plan to open the window under this Income Disclosure Scheme from 1st June to 30th September, 2016 with an option to pay amount due within two months of declaration.

161. Our Government is fully committed to remove black money from the economy. Having given one opportunity for evaded income to be declared once, we would then like to focus all our resources for bringing people with black money to books”.

From the above paragraph of the budget speech there are certain points which needs to discussed to get answer to our question. Those points are:

  • Object of the Scheme
  • Undisclosed Income
  • Limited Period Opportunity
  • Rate of Tax
  • Immunity from Prosecution
  • Regularization of the books of accounts

 Analysis of the above points

Object: The very Object of the Scheme is to provide an opportunity to those who have not discharged their liability to pay tax in full in the past. It is an opportunity for them to come forward and disclose their undisclosed incomes and pay taxes @45% of the undisclosed income so declared under this scheme.

Undisclosed Income: The undisclosed income is any income which is not disclosed in the ITR in any of the past years and it may be there in the form of assets of varied nature like immovable property, jewellery, shares, cash, bogus purchase, bogus creditors, share capital or any other form. The person who earns this is in a better position to state that what constitutes his undisclosed income or black money.

Limited Period Opportunity: The IDS 2016 is a scheme which is floated for a very short period. The scheme commences from 01.06.2016 to 30.09.2016, It means this scheme is only for 3 months. Within this period one has to analyze and decide his undisclosed income and make declaration accordingly. This is indeed a very hardship to the tax evaders as far as the period is concerned but since this is an opportunity to regularize the mistakes done in past it can be ignored.

Rate of Tax: the rate of tax is proposed and set at 45% of the undisclosed income. The rate is typically an integration of basic tax rate of 30%, Krishi Kalyan Cess @7.5% and Penalty @7.5%. Apparently the rate of tax (45%) is very high in comparison to the general rate of tax that is 30% and Maximum Marginal Rate is 33.99%. But on assuming a situation where an undisclosed income is caught up by the Income Tax Department during the course of proceeding under any provision of the Income Tax Act then that income is directly taxed u/s 115BBE at the rate of maximum marginal relief that is 33.99%. The Assessing Officer shall levy penalty under various provisions which may be 100% to 300% of the Tax. Even if we consider the lower side of the penalty the effective tax on such undisclosed income is roughly around 68% under the normal provisions of Income Tax Act 1961. Now compare if someone disclose this income under this scheme, the tax shall be charged @45% only and he saves minimum 23% of the tax.

Immunity from Prosecution: This is not only the benefit, further to add one must understand that the person who is declaring the undisclosed income under this income shall be immuned from prosecution under the act. Moreover, his identity shall be kept secret. If we continue the above situation, there is a possibility that the department may launch a prosecution under the income tax act 1961 which ends up with the imprisonment of jail term to the tax evaders. Contrary to this, the scheme provides with the opportunity of immunity from launching of the prosecution against the tax evaders.

Regularization of Books: The scheme can be said to be the best and one time opportunity for the tax evaders to regularize their books of accounts by bringing the off balance sheet transactions into the regular books. Obviously the tax is supposed to be 45% of the undisclosed income declared but even then one can carry 55% in their books.

From the above it is evident that the scheme is no doubt an opportunity to the tax evaders’ in spite of high tax rate of 45%. The following benefit can also be added to the wing of this scheme:

  • A person can make a declaration even when a scrutiny notice has been issued in his case on or after 01.06.2016.
  • The transaction under declaration will not be investigated in future by anyone. For instance if the declarant has received say Rs.5 lacs on money in cash on sale transaction of declared property he may declare cash amount of Rs. 5 lacs and pay tax at 2.25 lacs tax and unspent sum out of 2.75 lacs he may deposit in the bank. No questions will be asked on such deposit. Even in future no question shall be asked about this transaction.
  • There is no need to disclose the source of the transactions of the undisclosed income rather he needs to simply state the nature of the undisclosed income.
  • A very user-friendly form has been prescribed for this purpose. The form is self-explanatory and easy to fill and submit.
  • After the issue of circular no 32 whatever one disclose under this scheme shall be accepted by the Pr CIT and not even the survey party shall ask any question on this.
  • This scheme is an opportunity for the person who is holding Benami Property as an immunity is given to this property if the declarant makes the disclosure of such property under this scheme subject to certain condition.
  • Relaxation in time to make payment of taxes on undisclosed income declared under this scheme is also granted vide the press release dated 14th July 2016. According to this circular no the payment of taxes can be made in the instalments as follows:
  • not less than twenty-five per cent. of such tax, surcharge and penalty by the 30th day of November, 2016
  • not less than fifty per cent. of such tax, surcharge and penalty as reduced by the amount paid under clause (1) by the 31st day of March, 2017t;
  • the whole amount payable under section 184 and 185 as reduced by the amounts paid under clause (1) and (2) above by the 30th day of September, 2017.

Conclusion: At the very first instance when the scheme was launched it seems to very irrational and unjustified scheme. After coming up with the various FAQs, Circulars, clarification over a period of time by the Board specially in respect of relaxation of time limit to pay the taxes, immunity from prosecution, giving the indexation benefit in case of capital asset, the scheme is now becoming more lucrative and must go scheme to the tax evaders who skipped to make full payments of the taxes in past knowingly or unknowingly. In nutshell, this IDS 2016 scheme is an opportunity to clean your hand.

The author can also be reached at Yka421@gmail.com


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