Introduction
1. The Government has introduced Income Declaration Scheme, 2016 which has come into force from 1st June, 2016. The
scheme 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 totaling in all to 45% of such undisclosed income declared.
Further, as per scheme, declaration of undisclosed income in the form of assets
is to be made at Fair Market Value of such assets as on 1st June, 2016.
It is felt everywhere
that the total impact of tax in case of declaration of undisclosed income under
the scheme is quite high and, therefore, the initial response of the taxpayers
regarding the scheme is not encouraging one.
Clarifications issued
by CBDT
2. The CBDT has issued three sets of
Frequently Asked Questions (FAQs) containing 36 clarifications relating to
various controversial aspects clarifying doubts regarding the operation of the
scheme. One clarification has been issued by the CBDT by way of Circular No. 25/2016, dated 30th June, 2016 addressing question no. 5 which is
reproduced as under:—
Question No. 5: Where a valid declaration is made after making
valuation as per the provisions of the Scheme, read with IDS Rules and tax,
surcharge & penalty as specified in the Scheme have been paid, whether the
department will make any enquiry in respect of sources of income, payment of
tax, surcharge and penalty?
Answer: No.
2.2 Analysis of above said Circular: The above clarification is being interpreted
in a manner that it would reduce the effective rate of tax on undisclosed
income declared under the scheme from 45% to 31%. It is being interpreted in
some circles that since the above clarification states that department will not
make any enquiry in respect of the sources of payment of tax, surcharge and
penalty, it, therefore, would give leverage to the taxpayer to make payment of
taxes on the undisclosed income declared under the scheme out of the other
undeclared sources and such other undisclosed source of income need not be made
part of total declaration. This can be explained by way of the following
example:
|
Particulars
|
Amount (in Rs.)
|
|
Declaration of
income under the scheme ……
|
100 Lacs
|
|
Tax required to be
paid @ 45% ……
|
45 Lacs
|
In case the above said
sum of Rs. 45 Lacs is also paid out of undisclosed income, since the source of
such amount shall not be enquired into by the department, it would result as
under:
|
Particulars
|
Amount (in Rs.)
|
|
Total declaration of
undisclosed income (100 + 45) ……
|
145 Lacs
|
|
Tax paid under the
scheme…….
|
45 Lacs
|
|
Effective rate of
tax (45/145*100)……
|
31%
|
It is interesting to
note that there was front page news in "The Economic Times" on 2nd July, 2016 reporting
the above interpretation. Moreover, there was a meeting in the evening on 2nd
July, 2016 conducted by the Institute of Chartered Accountants of India (ICAI)
inviting CBDT Chairman and other officials which was webcast throughout the
country. In the above programme, similar views were expressed by an eminent tax
expert who was speaking regarding various aspects of the scheme in the presence
of CBDT Chairman and other senior officials. There was no rebuttal from the
CBDT officials on the above interpretation, which has also given an impression
in the minds of the tax experts and taxpayers that the scheme shall be operated
in the above manner and thus, taxpayers may be able to reduce the effective
rate of tax on undisclosed income declared under the scheme from 45% to 31%.
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