Golden chance to declare domestic black money at effective tax rate of 31%

The Govt. has given an opportunity to persons who have not paid full taxes on their income of earlier years to come forward and declare the undisclosed income under the 'Income Declaration Scheme' (IDS). They are required to pay tax of forty-five per cent of such undisclosed income. The IDS is effective from June 1, 2016 and will remain open up to September 30, 2016. The declarant is required to pay tax up to November 30, 2016. However, various queries have been received by CBDT on IDS. Thus, the CBDT had issued three sets of FAQs till date. In the recent tranche of FAQs issued on June 30, 2016 the CBDT has clarified that once the person had declared undisclosed income, no question will be asked from where such income or tax is coming from. This assurance in the lasts FAQs (Question 5) issued by dept. will bring down the effective tax rate from 45% to 31% on the undisclosed income. Let us understand this scenario with the help of illustration. Suppose Mr. A offers his undisclosed income of Rs. 290 crores under IDS. Now out of Rs. 290 crores he will declare his undisclosed income of Rs. 200 crores by paying tax of Rs. 90 crores (Rs. 200 crores × 45%). As per the clarification no questions will be asked from where such income of Rs. 200 crores has come. Similarly, the remaining income of 90 crores (290-200) from which he has paid taxes will also be treated as his legitimate income. Thus, ultimately Mr. A has paid tax of around 31% on undisclosed income of Rs. 290 crores. The dept. had also clarified that such information will not be shared with other law enforcement agencies. Thus, it is the golden opportunity for taxpayers to come clean by paying effective tax rate of 31%.