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Your Financial Adviser MONEY MAKING MC
Keen to unearth black money, the Indian government has
unveiled a new scheme for domestic taxpayers in a limited period compliance
window to declare their undisclosed income whether in the form of investment in
assets in India or otherwise, and clear up their past tax transgressions. Such
people would have to pay a tax of 45%, including 30% basic tax, 7.5% as Krishi
Kalyan Cess and 7.5% of the undisclosed income as penalty.
The Income Declaration Scheme, 2016 (the Scheme) has been
introduced as Chapter IX of the Finance Act, 2016. The Scheme is effective from
1st June to 30 September 2016.
Here are answers to some questions that a taxpayer may
have about the scheme
Question:
Where an undisclosed income in the form of investment in asset is declared
under the Scheme and tax, surcharge and penalty is paid on the fair market
value of the asset as on 1 June 2016, then will the declarant be liable for
capital gains on sale of such asset in the future? If yes, then how will the
capital gains in such case be computed?
Answer: Yes, the declarant will be
liable for capital gains under the Income-tax Act on sale of such asset in
future. As per the current provisions of the Income-tax Act, the capital gains
is computed by deducting cost of acquisition from the sale price. However,
since the asset will be taxed at its fair market value the cost of acquisition
for the purpose of Capital Gains shall be the fair market value as on
01.06.2016 and the period of holding shall start from the said date (i.e. the
date of determination of fair market value for the purposes of the Scheme).
Question:
Where a notice under section 142(1)/ 143(2)/ 148/ 153A/ 153C of the Income-Tax
Act has been issued to a person for an assessment year will he be ineligible
from making a declaration under the Scheme?
Answer: The person will only be
ineligible from declaration for those assessment years for which a notice under
section 142(1)/143(2)/148/153A/153C is issued and the proceeding is pending
before the Assessing Officer. He is free to declare undisclosed income for
other years for which no notice under above referred sections has been issued.
Question:
As per the Scheme, declaration cannot be made where an undisclosed asset has
been acquired during any previous year relevant to an assessment year for which
a notice under section 142, 143(2), 148, 153A or 153C of the Income-Tax Act has
been issued. If the notice has been issued but not served on the declarant then
how will he come to know whether the notice has been issued?
Answer: The declarant will not be
eligible for declaration under the Scheme where the undisclosed income relates
to the assessment year where a notice under section 142, 143(2), 148, 153A or
153C of the Income-tax Act has been issued and served on the declarant on or
before 31 May 2016. The declarant is required to file a declaration regarding
receipt of any such notice in Form-1.
Question:
In a case where the undisclosed income is represented in the form of investment
in asset and such asset is partly from income that has been assessed to tax
earlier, then what shall be the method of computation of undisclosed income
represented by such undisclosed asset for the purposes of the Scheme?
Answer: As per sub-rule (2) of rule
3 of the Income Declaration Scheme Rules, 2016, where investment in any asset
is partly from an income which has been assessed to tax, the undisclosed income
represented in form of such asset will be the fair market value of the asset
determined in accordance with sub-rule (1) of rule 3 as reduced by an amount
which bears to the value of the asset as on the 1.6.2016, the same proportion
as the assessed income bears to the total cost of the asset. This is
illustrated by an example as under:
Investment in acquisition of asset in previous year
2013-14 is of Rs500 out of which Rs200 relates to income assessed to tax in
AY2012-13 and Rs300 is from undisclosed income pertaining to previous year
2013-14. The fair market value of the asset as on 1June 2016 is Rs1,500.
The undisclosed income represented by this asset under
the scheme shall be:
1,500 minus (1,500 X 200/500) = 900
Question:
Can a declaration be made of undisclosed income which has been assessed to tax
and the case is pending before an Appellate Authority?
Answer: As per section 189 of the
Finance Act, 2016, the declarant is not entitled to re-open any assessment or
reassessment made under the Income-Tax Act. Therefore, he is not entitled to
avail the tax compliance in respect of such income. However, he can declare
other undisclosed income for the said assessment year, which has not been
assessed under the Income-tax Act.
Question:
Can a person against whom a search/ survey operation has been initiated file
declaration under the Scheme?
Answer:
(a) The person is not eligible to make a declaration
under the Scheme if a search has been initiated and the time for issuance of
notice under section 153A has not expired, even if such notice for the relevant
assessment year has not been issued. In this case, however, the person is
eligible to file a declaration in respect of an undisclosed income in relation
to an assessment year, which is prior to assessment years relevant for the
purpose of notice under section 153A.
(b) In case of survey operation, the person is barred
from making a declaration under the Scheme in respect of an undisclosed income
in which the survey was conducted. The person is, however, eligible to make a
declaration in respect of an undisclosed income of any other previous year.
Question:
Where a search/ survey operation was conducted and the assessment has been
completed but certain income was neither disclosed nor assessed, then whether
such unassessed income can be declared under the Scheme?
Answer: Yes, such undisclosed
income can be declared under the Scheme.
Question:
What are the consequences if no declaration under the Scheme is made in respect
of undisclosed income prior to the commencement of the Scheme?
Answer: As per section 197(c) of
the Finance Act, 2016, where any income has accrued or arisen or received or
any asset has been acquired out of such income prior to the commencement of the
Scheme and no declaration is made under the Scheme, then such income shall be
deemed to have been accrued, arisen or received or the value of the asset
acquired out of such income shall be deemed to have been acquired in the year
in which a notice under section 142/143(2)/148/153A/153C is issued by the
Assessing Officer and the provisions of the Income-tax Act shall apply
accordingly.
Question:
If a declaration of undisclosed income is made under the Scheme and the same
was found ineligible due to the reasons listed in section 196 of the Finance
Act, 2016, then will the person be liable for consequences under section 197(c)
of the Finance Act, 2016?
Answer: In respect of such
undisclosed income which has been duly declared in good faith but not found
eligible, then such income shall not be hit by section 197(c) of the Finance
Act, 2016. However, such undisclosed income may be assessed under the normal
provisions of the Income-tax Act, 1961.
Question:
If a person declares only a part of his undisclosed income under the Scheme,
then will he get immunity under the Scheme in respect of the part income
declared?
Answer: It is expected that one
should declare all his undisclosed income. However, in such a case the person
will get immunity as per the provisions of the Scheme in respect of the
undisclosed income declared under the Scheme and no immunity will be available
in respect of the undisclosed income, which is not declared.
Question:
Can a person declare under the Scheme his undisclosed income which has been
acquired from money earned through corruption?
Answer: No. As per section 196(b)
of the Finance Act, 2016, the Scheme shall not apply, inter-alia, in relation
to prosecution of any offence punishable under the Prevention of Corruption
Act, 1988. Therefore, declaration of such undisclosed income cannot be made under
the Scheme. However, if such a declaration is made and in an event it is found
that the income represented money earned through corruption it would amount to
misrepresentation of facts and the declaration shall be void under section 193
of the Finance Act, 2016. If a declaration is held as void, the provisions of
the Income-tax Act shall apply in respect of such income as they apply in
relation to any other undisclosed income.
Question:
Whether at the time of declaration under the Scheme, will the Principal
Commissioner/ Commissioner do any enquiry in respect of the declaration made?
Answer: After the declaration
is made the Principal Commissioner/ Commissioner will enquire whether any
proceeding under section 142(1)/143(2)/148/153A/153C is pending for the
assessment year for which declaration has been made. Apart from this no other
enquiry will be conducted by him at the time of declaration.
Question:
Will the declarations made under the Scheme be kept confidential?
Answer: The Scheme
incorporates the provisions of section 138 of the Income-tax Act relating to
disclosure of information in respect of assessees. Therefore, the information
in respect of declaration made is confidential as in the case of return of
income filed by assessees.
Question:
Is it necessary to file a valuation report of an undisclosed income represented
in the form of investment in asset along with the declaration under the Scheme?
Answer: It is not mandatory
to file the valuation report of the undisclosed income represented in the form
of investment in asset along with the declaration. However, the declarant
should have the valuation report. While e-filing the declaration on the
departmental website a facility for uploading the documents will be available.
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