Sunil Singh (name changed) has undisclosed an income of Rs 2 crore, which was generated by him in the previous year 1995-96 from a business not disclosed to the Income Tax department; currently, Rs 2 crore in cash is lying in a bank locker in the Preet Vihar Branch of State Bank of India. This undisclosed income is not disclosed under the Income Declaration Scheme, 2016.
In a search proceeding pertaining to ABC Ltd, the assessing officer comes to know about the existence of the bank locker above. A notice is issued on 10 January 2017 under Section 142/143(2)/148/153A/153C, requiring Singh to submit the return of income for a year that is now two decades behind us. Singh, in his reply, argues that the undisclosed income pertains to the previous year 1995-96 (Assessment Year 1996-97). He has given sufficient documentary evidence to support his point of view. The department agrees that the income pertains to the previous year. But Singh insists that the assessing officer does not have any power to invoke reassessment proceedings in the financial year 2016-17 to reassess income of the assessment year 1996-97.
Singh has not declared undisclosed his income under the Income Declaration Scheme, 2016. Under Section 197(c) of the Finance Act, 2016, a deeming provision is made, which is applicable if the following conditions are satisfied:
- The undisclosed income is accrued or received prior to 1 June 2016.
- Such an income is not disclosed under the Income Declaration Scheme, 2016.
- Subsequently, the department has issued a notice under section 142/143(2)/148/153A/153C to tax the aforesaid income.
If the above three conditions are satisfied, the undisclosed income shall be deemed to have been accrued, arisen or received 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. By virtue of this deeming fiction, the undisclosed income of Rs 2 crore will be treated as income of the previous year 2016-17 and the department can tax this income for the assessment year 2017-18.
Hope this example gives clarity about government intention.
The Declaration Scheme, 2016, introduced vide Finance Act, 2016 (28 of 2O16), provides an opportunity to persons who have not paid full taxes in the past to come forward and declare their undisclosed income. Rule 4 of the Income Declaration Scheme Rules, 2O16, provides that a declaration of income or income in the form of investment in any asset under Section 183 shall be made, in the prescribed manner, to the principal commissioner or the commissioner who exercises jurisdiction over the declarant.
A declaration under the Scheme can be made any time on or after 1 June 2016 but before a date to be notified by the Union government. The government has further notified 30 September 2016 as the last date for making a declaration under the scheme and 30 November 2016 as the last date by which the tax, surcharge and penalty shall be paid.
Under the scheme to apply to one’s undisclosed income in the form of assets or otherwise pertaining to FY 2015-16 or earlier years, any person may make a declaration in respect of any income chargeable to tax under the Income Tax Act (pertaining to the aforesaid period):
- For which he has failed to furnish a return under section 139;
- Which he has failed to disclose in a return of income furnished by him under the Income Tax Act before the date of commencement of this scheme;
- Which has escaped assessment by reason of omission or failure on the part of such a person to furnish a return under the Income Tax Act or to disclose fully and truly all material facts necessary for the assessment or otherwise.
Rate of tax
The person making a declaration under the scheme would be liable to pay tax at the rate of 30% of the value of such undisclosed income as increased by surcharge at the rate of 25% of such tax. In addition, he would also be liable to pay a penalty at the rate of 25% of such tax. Therefore, the declarant would be liable to pay a total of 45% of the value of the undisclosed income declared by him. This special rate of tax, surcharge and penalty specified in the scheme will override any rate or rates specified under the provisions of the Income Tax Act or the annual Finance Acts.
Tax, surcharge and penalty to be paid by 30 November 2016:
Forms to be used
|Form No||Description||Time limit||By person|
|1||Declaration||Before 30 September 2016||Declarant|
|2||Acknowledgement||Within 15 days of filing form 1||Jurisdictional principal CIT/ CIT|
|3||Proof of payment of Tax , Surcharge and penalty||Declarant|
|4||Certificate of accepted declaration||Within 15 days of filing form 3||Jurisdictional principal CIT/ CIT|
The declarant shall not be liable for any adverse consequences under the scheme in respect of, any income which has been duly declared but has been found ineligible for declaration. However, such information may be used under the provisions of the Income Tax Act. One can file the declaration online or through the jurisdictional principal commissioner of income tax.
- Assets declared will be exempt from wealth tax
- No scrutiny or enquiry under Income Tax/Wealth Tax Act in respect of such declaration
- Immunity from prosecution under Income Tax/Wealth Tax act
- Immunity from Benami Transactions (Prohibition) Act, 1988 subject to certain conditions.
The scheme shall not apply in the following cases:
- Where notices have been issued under section 142(1) or 143(2) or 148 or 153A or 153C and the proceeding is pending before the Assessing Officer; or
- Where a search or survey has been conducted and the time for issuance of notice under the relevant provisions of the Act has not expired, or
- Where information is received under an agreement with foreign countries regarding such income;
- Cases covered under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 or
- Persons notified under Special Court (Trial of Offences Relating to Transactions in Securities) Act,1992, or
- Cases covered under Indian Penal Code, the Narcotic Drugs and Psychotropic Substances Act, 1985, the Unlawful Activities (Prevention) Act, 1967, the Prevention of Corruption Act, 1988, or Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974.
The example in the second paragraph provides clarity on the intention of the government. Here, they have also made the time limitation of taxing any undisclosed income for any past period clear. This scheme is a part of the Finance Act, not of the Income Tax Act; the BJP-led NDA government is trying very hard to tax black money. But such a high tax rate raises doubts about possible success of this policy. Let’s hope for the best for our country.