BLACK MONEY

Background

India is going through a revolutionary decade where there has been strong moves to bring black money into circulation.

Govt. is fully committed to remove Black money from the economy.

The main aim of the scheme is to provide good opportunities for assessee to clean up the past act and move forward.

In the Budget 2015 also, the Indian Government introduced a scheme for voluntary declaration of undisclosed foreign income and assets for resident taxpayers under the Black Money Act.

Highlights of “undisclosed foreign income and assets Scheme”

The Black Money Act is a declaration scheme under which all resident taxpayers can declare the undisclosed foreign income and assets

On such undisclosed income and assets the taxpayer was required to pay up to 60% as both tax and penalty under that scheme.

However, the officer designated had received 638 declarations only amounting to Rs 4,147 crores of undisclosed foreign income and assets by the end of compliance window (i.e., 30th September, 2015).

Hence, one can conclude that this declaration Scheme was not successful.

Income Declaration Scheme, 2016

By Rohit Maheshwari

Income Declaration Scheme,2016

INTRODUCTION

A new scheme has been designed to declare any ‘undisclosed income’ vide the Finance Bill, 2016 for persons who have not paid full taxes in the past.

The scheme provides for declaration by any person of his undisclosed income by paying tax, surcharge and penalty on such declared income.

Thus through announcing this scheme, Finance Minister has provided one more opportunity to permit the non-filers, stop filers and persons with unaccounted income/investments to pay a moderate tax by declaring their untaxed incomes

Points to be covered under the scheme

Scope and Definitions

Period of scheme

Applicable year

Amount payable under the scheme

Scope or person Eligible

Person not Eligible under the scheme

Exemptions/Immunities Available

Points to be covered under the scheme

Valuation of Assets

Payment

Important issue

Other Matter

Analysis

Conclusions

Scope and Definitions

Applicable to Residents as well as Non-residents

What is an Undisclosed Asset and Undisclosed Income Undisclosed Asset: An asset(including bank balances) located Within and outside

India which the assessee owns and does not disclose or fails to show the source to purchase the asset. The Fair Market Value of the asset will be considered for taxation.

Undisclosed Income: Any income derived from any source from by the assessee, that is not disclosed will be considered for taxation

PERIOD OF SCHEME

The Scheme will come into force from 1st of June, 2016 and shall remain open up to the date to be notified by the Central Government(30th september by finance minister in his speech)

APPLICABLE YEAR

It is proposed to be made applicable in respect of undisclosed income of any financial year up to 2015-16.

AMOUNT PAYABLE

The income tax will be charged @30% on the declared income. It will be increased by a surcharge @ 25% of tax payable (to be called the Krishi Kalyan Cess) and a penalty @ 25% of the tax. Thus, the declared income will suffer a tax burden of 45% in aggregate.

Scope or Person Eligible

No Return Case

• For which he failed to furnish a return under Section 139 of the Act

Income not Disclosed in Return

• He did not disclose the income in his return furnished under the Act before the date of commencement of the Scheme

Income Escaped Assessment

• Which escaped assessment by reason of the omission or failure on the part of such person to furnish a return under the Income-tax Act or to disclose fully and truly all material facts necessary for the assessment

Cases Not Covered

Pending Matters under the IT Act

Cases cover under other Act

Pending Cases under IT Act

Where a notice u/s 142 or 143(2) or 148 or 153A or 153C has been issued in respect of such asset year and pending before the AO.

Where a search or survey has been conducted, and no notice u/s 142(2) or 153A or 153C has been issued and the time limit for issuing such notice has not expired.

Where any information has been received under an agreement with foreign countries by the competent authority u/s 90 or 90A of the Act.

Cases covered under other Acts

Black Money and Imposition of Tax Act, 2015

Special Court (Trial of offences relating to Transaction in Securities) Act,1992

Indian Panel Code

The Narcotic Drugs and Psychotropic Substance Act ,1985

The unlawful Activities (Prevention) Act,1967

The prevention of Corruption Act,1988

Exemptions/Immunities

Exemption from wealth-tax in respect of assets specified in declaration.

No scrutiny and enquiry under the Income-tax Act and Wealth-tax Act be undertaken related to the declaration.

Immunity from prosecution under Income-tax Act and Wealth-tax provided.

Immunity from the Benami Transactions (Prohibition) Act, 1988 provided

Valuation of Asset

In this regard, the fair market value of such asset as on the date of commencement of this scheme i.e. 01-06-2016 shall be deemed to be the undisclosed income.

Thus Appreciation in the value of asset, from the date of purchase till date of commencement of the scheme shall be taxed.

Payment related matters

Payment shall be required to be made on or before a date to be notified by central government (as in speech it is decided to make payment within 2 months from the date of declaration)

Failure to pay the taxes and penalty as aforesaid, the declaration shall be deemed never to have been filed and such declaration shall be void.

Income so declared and paid under the scheme shall not be included in the total income for any assessment year.

If declaration is made but payment is not made then such undisclosed income shall be chargeable to tax under the income tax act in the P.Y. in which such declaration is made and provisions of IT act shall apply.

Important Issue

A declarant under the scheme shall not be entitled to reopen any assessment or claim any setoffs or relief in any appeal or other procedings.

Where the asset has been understated in the return of wealth, then excess of voluntarily disclosed income over the understatement of asset shall be taken into account in computing the net wealth for the asst. years.

No deduction in respect off any expenditure or allowance against such declared income.

Other matter

The declaration shall be treated as void where the same is made by misinterpretation or suppressions of facts.

No benefit, concession or immunity on any person other than the person making the declaration under this scheme.

Any income accrued or asset acquired out of such declared income in respect of which no declaration is made , such income or asset shall be deemed to have been earned or acquired in the year in which notice u/s 142 or 143(2) or 148 or 153A or 153C is issued by the AO.

Analysis-1

Comparision Between Black Money Act v/s IDS,2016

Tax payers

Tax Liability

Income

Thus, the net liability to be discharged under the IDS, 2016 is lower than the declaration made under Black Money Act, IDS, 2016 it obviously appears to be more beneficial.

Analysis-2

What will happen if income is not Disclosed

Any wilful attempt to evade tax under the current provisions of the Act attracts penalty under Section 271 and prosecution under Section 276C.

Penalty shall be levied for concealing or for furnishing inaccurate particulars of income and it would be ranging from 100% to 300% of the amount of tax sought to be evaded.

Prosecution proceedings may lead to imprisonment ranging from 3 months to 7 years along with fine.

Analysis-2

However, under the IDS, 2016, the penalty will be just 25% of the tax evaded (i.e., 25% of 30%) and the declarant will be deemed to be immune from all prosecution proceedings under the Income-tax Act and Wealth-tax Act.

Analysis-2

Example

Particulars S.271(1)(C) IDS,2016

Basic Tax Rate 30% (Suppose a company) 30%

Surcharge 7% 25% of 30%

Education Cess 3% -

Penalty 100%-300% 25% of 30%

Prosecution Yes Immunity granted

Analysis-2

The impact of above provisions in monetary terms is explained below:

Analysis-3

Section 270A

According to finance bill, 2016 it is proposed that with effect from 1st April, 2017 penalty shall be levied under the newly inserted Section 270A. It provides for levy of penalty in cases of under reporting and misreporting of income.

This section is the replacement of Section 271(1)(c).

Under this section,

Penalty shall be equal to 50% of the amount of tax payable on under-reported income. the penalty will increase from 50% to 200% in case of any misreporting of income

Conclusion

IDS, 2016 is definitely a beneficial scheme for the eligible tax payers to declare the income which was not offered to tax earlier.

In the Scheme, except collecting 45% by way of tax, surcharge and penalty, the tax evaders have been granted immunity from prosecution, scrutiny and enquiry whereas the honest tax-payers who file their tax returns every year on time, have to face scrutiny and enquiries to verify the correctness of the income declared by them in their returns.

Thus it is a good opportunity for people with past mistakes to come forward and get their affairs clean up.

THANK YOU