The Finance Minister in his Budget Speech on 29th February, 2016 surprised all by introducing the Income Declaration Scheme, 2016 which is proposed to come into effect from 1st June, 2016. For persons who have not paid full taxes in the past, the Scheme provides a one-time window to come forward and declare the undisclosed income of any financial year upto 2015-16 and pay tax, surcharge and penalty aggregating to 45% of such undisclosed income declared. The FM has indicated in his Budget Speech that the window will be open from 1st June till 30th September, 2016 with an option to pay amount due within two months of declaration. Post Budget the FM has mentioned that the four-month compliance window for domestic black money holders is not a VDIS (Voluntary Disclosure of Income Scheme) and it is not an amnesty scheme. Interestingly the FM has used the phrase 'past trangressions' recognising the past wrongdoings of tax evaders and offer them an exit door on payment of 45% of undisclosed income. Such persons would further enjoy immunity from prosecution under Income Tax Act, Wealth Tax Act, and Benami Transaction (Prohibition) Act, 1988. As per our FM, the Government is fully committed to remove black money from the economy. The Scheme as mentioned in clauses 178 to 196 of the Finance Bill, 2016 (in short referred as the 'Bill') is analysed hereunder:
1. Backdrop and comparison of present Scheme with some aspects of VDIS, 1997:
It would be relevant to mention that the prime reason for accumulation of black money has been the fact that our country had the maximum tax rate of 97.75% (tax @ 85% plus surcharge @ 15%) in seventies. That means a person declaring income of Rs. 10 Lakhs in those years was required to pay tax of almost Rs. 9,77,500/- only (if we ignore the initial exemption limit). In addition to that one was required to pay wealth tax. Now the maximum rate of tax is 30% plus education cess of 3% plus surcharge in some cases which is much reasonable to the tax rates in 1970's. The present Income Disclosure Scheme, 2016 announced in Budget, 2016 has some positive aspects as well as some not so positive aspects if we compare with the Voluntary Disclosure of Income Scheme, 1997 (VDIS) declared for Indian tax payers. The rate of tax payable under the present scheme is 45 per cent (tax @ 30% plus surcharge 7.5% plus penalty 7.5%) which is 1.5 times of the tax payable under VDIS, 1997. It may be noted there was no penalty in case of VDIS.