Income Declaration Scheme, 2016 – Critical Analysis

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Customer Care No. 91-11-45562222
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
  _at_ 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 _at_ 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 has been acquired out of the declared
  undisclosed income as above and explains the
  source of investment in the property in such
  manner claiming the property to be of disclosed
  nature, in our considered opinion, such view may
  not be tenable as per the provisions of the
  present scheme.

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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 _at_
  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 give any
  evidence before it in respect thereof .

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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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