Saturday, July 9, 2016

A comparative analysis of new income declaration scheme and settlement scheme

Amongst the various new schemes and changes brought about by the Budget, 2016, one of the most talked about and significant change is Income Declaration Scheme, 2016 (" herein after referred to as "the Scheme" or "New Scheme" or "Disclosure Scheme, 2016" in the context in which it is required) . The Scheme which has come into effect from 1st June, 2016 vide notification dated 19th May, 2016 is expected to bring about a change in the manner of disclosure/declaration of undisclosed/undeclared income. The Scheme has been introduced as a separate chapter, Chapter IX, to Finance Act, 2016.Further, the government has notified the Income Declaration Rules, 2016(hereinafter referred as the Rules)to give effect to various provisions of the Scheme.
Presently, the penal consequences of not disclosing income (technically speaking concealment or furnishing of inaccurate particulars of income) are so harsh and rigid that they may act as a deterrence for the assessee, who might wish to disclose the income, though there may be various others reasons for not disclosing the true income. In view of this, introduction of new Scheme of Disclosure of Income is a welcome change.

Purpose and Scope
The main purpose of the Scheme is to provide an opportunity to persons who have not paid full taxes in the past to come forward and declare the undisclosed income and pay tax. The scope of the Scheme extends to all assesses (Individual, HUF, Company, Firm, Any other associations or any other persons). However, persons who have been served notice under Section 142, or 143(2), or 148 or 153A or 153C of the Income Tax Act, 1961(" the Act" for Short) ,persons notified under section 3 of Special Court (Trial of Offences Relating to Transaction in Securities) Act, persons in respect of whom proceedings under Chapter IX (offences relating to public servants) and Chapter XII (offences against property) of Indian Penal Code are pending, persons accused under Unlawful Activities (Prevention) Act or the Narcotic Drugs and Psychotropic Substances Act, or Prevention of Corruption Act have been kept out of the ambit of this scheme. Moreover, cases covered under Black Money (undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 are also left out from the Scheme.
Salient Features of the Scheme

The Applicant can declare any income chargeable to tax, which he has failed to disclose earlier for any AY prior to AY 2017-18 by making declaration in form No. 1.

Where the income chargeable to tax is declared in the form of investment in any asset, the fair market value of such asset as on 1st June, 2016 computed in accordance with Rule 3 of the Rules shall be deemed to be the undisclosed income.

Aggregate tax, surcharge and penalty payable on the income disclosed will be 45% of the total undisclosed income. Tax being 30% of the income, increased by a surcharge of 25% and a penalty of 25% of such tax thus totalling in all to 45% of the undisclosed income.

Scheme is operation from 01.06.2016 to 30.09.2016 and the last date for payment of tax with surcharge and penalty is 30.11.2016.

The amount of undisclosed income will not be included in the total income of the declarant under the provisions of the Act for any assessment year.

Immunity from the Benami Transactions (Prohibition) Act, 1988 shall be available in respect of the assets disclosed in the declarations subject to the condition that the benamidar shall transfer to the declarant or his legal representative the asset in respect of which the declaration of undisclosed income is made on or before 30th September, 2017;

The value of asset declared in the declaration shall not be chargeable to Wealth-tax for any assessment year or years.

Declaration of undisclosed income will not affect the finality of completed assessment. The declarant will not be entitled to claim re-assessment of any earlier year or revision of any order or any benefit or set off or relief in any appeal or proceedings under the Income-tax Act in respect of declared undisclosed income or any tax, surcharge or penalty paid thereon.
An imminent question that arises is whether there exists any provision(s) under the Act itself regarding the disclosure of any additional income by the assessee in case he fails to furnish the same in return filed by him and if the assessee wishes to disclose such income and its source before the revenue authority?
Indeed there exists such a provision relating to 'settlement of case' contained in Chapter XIX- A of the Act, which relates to settlement of case pending in case of an assessee, with condition precedents being full and true disclosure of his income, payment of additional tax etc., on or before the date of making application u/s 245C of the Act.
This article is a humble attempt at making a comparative analysis between the scheme regarding the settlement of case and the new Disclosure Scheme, 2016 and drawing distinctions between the two.

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