India: The Income Declaration Scheme, 2016

Last Updated: 7 July 2016
Article by Rohit Jain and Rohit Garg

Vide Finance Act, 2016, the Government inserted Chapter-IX providing for Income Declaration Scheme'2016 ('the Scheme'). By using technology and requiring PAN disclosures for a range of transactions, the Income tax Department is tightening the net on the generation of black money at source. While the Income Disclosure Scheme last year sought to tackle black money stashed overseas, this year's Scheme is, however, limited to domestic income that has remained untaxed. It is unlikely that similar scheme would again be launched in near future. It is, therefore, imperative to diligently and carefully avail the benefit of compliance window

Following are the salient features of the above Scheme:

Applicable legal framework
  • Chapter-IX of the Finance Act, 2016 (section 181 to 199)
  • 3 Circulars issued in the form of FAQs
  • Notified Forms 1 to 4.
What can be declared?
  • Any undisclosed asset in the form of movable/immovable property; cash, jewellery etc.
Eligible Assessee
  • Any person (whether resident or non-resident) having not declared income in the years prior to the assessment year 2017-18 except certain cases specifically excluded under section 196.
Valuation/computation of undisclosed income
  • The Fair Market Value ('FMV') of the undisclosed asset as on 1st June'2016 shall be deemed as undisclosed income.

    CBDT has further laid down valuation rules for determining the fair market value of the undisclosed asset (refer Rule-3).
Duration of scheme
  • The Scheme is available from June 1, 2016 till September 30, 2016.
Applicable tax rate and timeline
  • 45% of the undisclosed income (without deduction of any expenditure/set off of losses)
  • To be paid on or before November 30, 2016
  • Above is subject to credit of taxes deducted, if any.

BENEFITS OF THE SCHEME:

  • Undisclosed income declared shall not be included in the total income for any assessment years;
  • Undisclosed income declared will not affect the finality of the completed assessments.
  • Department and the same shall not be admissible as evidence in any other proceedings under the Income tax Act.

    CBDT has clarified that the information contained in the declaration shall neither be shared with any other law enforcement nor within the Income tax department for any further investigation;
  • CBDT has clarified that the department will not make any enquiry about the sources of income, payment of tax, surcharge and penalty.
  • Undisclosed income under a valid declaration shall be:

    1. exempted from levy of Wealth tax; and
    2. immune from the provisions of Benami Transactions (Prohibition) Act,1988.
  • In certain cases, depending on the facts and circumstances, the effective tax rate may, as per our understanding, work out to 31% only or even lesser than that.
  • Tax shall be payable at the FMV determined in accordance with the prescribed valuation rules, which may be lower than the stamp duty valuation. We will keep you updated on further developments on the subject matter.

© 2016, Vaish Associates Advocates,
All rights reserved
Advocates, 1st & 11th Floors, Mohan Dev Building 13, Tolstoy Marg New Delhi-110001 (India).

The content of this article is intended to provide a general guide to the subject matter. Specialist professional advice should be sought about your specific circumstances. The views expressed in this article are solely of the authors of this article.

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