income disclosure scheme- an overview

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A.Y. 2016 – 2017

INCOME DISCLOURE SCHEME

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Background…

- Population of our country: 125 crores

- Only 1,50,000 people whose taxable income is > 50 lakhs

- Skewed Statistics

- Efforts for taxing the black money

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Publicity

• Pm’s mann ki baat : coaxing & threatening at the same time

• Urges people to be a part of the “transparent” system

• Warns of difficulties if one having such income does not take benefit of IDS

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Department ki “marketing”

• Department has conducted seminars for creating awareness about the scheme

• Mentions undisclosed income to be a “time bomb” waiting to be diffused

• Efforts at bringing domestic black money in ambit of tax

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Scheme in brief:

• Scheme is w.e.f 01.06.2016, end date to make a declaration is 30.09.2016

• Rate of tax – 30%, Surcharge – 25%, penalty -25%

• As per scheme, declarant to pay tax @45% on undisclosed income

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Scheme in brief:

• Declaration to be made in form 1

• Prin CIT / CIT to acknowledge in form 2 within 15 days from end of month in which declaration is made

• Proof of payment by declarant in Form 3

• Authority to issue a certificate in Form 4, within 15 days of submission of proof of payment

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Scheme in brief:

• Ineligible declaration:-- If notice u/s 142 / 143(2)/148/ 153A or 153C has

been issued before 31.05.16- Search / survey cases- Cases covered under Black Money Act- Issues covered under other Acts

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Scheme in Brief:

• Instances when declaration shall be invalid:

- Failure to pay the tax & penalty by 30.11.16

- Declaration has been made by suppression or misrepresentation of facts

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Benefits :

• “NO QUESTIONS ASKED”

• Undisclosed income not to be included in TI for any AY

• Declaration to be valid evidence for proceedings under the Income Tax Act

• Immunity from Wealth Tax Act• Declaration not to affect finality of completed

assessments

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Sawalon k jawab, ya naye sawal:

• Subsequent transfer of capital asset disclosed under the scheme : POH will be counted from date of disclosure

• Part income not disclosed under any earlier search / survey cases – can be disclosed under the scheme

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Sawalon k jawab, ya naye sawal:

• Income declared, but found to be ineligible: to be assessed under normal provisions of the Act.

• Part payment of taxes + penalty = declaration invalid

• Business Reorganisations: Declaration is to be made in name of new entity

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Sawalon k jawab, ya naye sawal:

• Scheme NA for applicants where proceeding is pending with Settlement Commission

• Information not to be shared with other law enforcement agencies

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Some Maths:

• Various calculations, stating effective rate of tax = 31%

• FAQ no.5 , Circular No. 25/2016, dated 30-6-2016

• Interpretation ambigiuous

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IDS- from the Rules

• Registered Valuer: person so regtd under section 34AB of the Wealt tax Act

• Valuation rules – somewhat similar to Rule 11UA for valuation of gifts in kind being immovable or movable property

• Unquoted equity shares: value derived from formula using BV of A&L on 01.06/2016

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IDS – from the Rules

• For valuation of unquoted share or security, Other than equity share:

- COA or FMV on 01.04.16, basis valuation report of “registered valuer”

- If one looks at qualifications of “registered valuer” under Rule 8A of Wealth Tax Act,

- One wonders if it should have been “Merchant Banker”

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IDS – from the Rules

• Investment in asset from income which was partly disclosed – Proportionate amount to be included

• Procedures / formats / standards for ensuring secure capture & transmission of data ??

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“ We have what it takes, to take what you have” is probably the sentiment

Wonder what is in store post 30.09.16. once the time limit for IDS ends

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• For clarification of any queries on the IDS and interpretational issues, please contact:

caprachiparekh@gmail.com