By Accommodation Times News Service
By CA Vimal Punmiya
India has seen various Voluntary Disclosure Schemes under the Income tax and wealth tax Act in the past as under:
|VDS – Scheme||No. of Declarants||Income / wealth declared (In Cr)||Tax collected (In Cr)|
Foreign Income and Assets, 2015
Keen to unearth black money, the 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 by paying a total of 45% (tax @30%, Krishi Kalyan Cess @7.5% and firstname.lastname@example.org%) of the undisclosed income.
In this regard, the Income Declaration Scheme, 2016 (the Scheme) has been introduced as Chapter IX of the Finance Act, 2016. The Scheme is effective from 1 June to 30 September 2016.
Scope of the Scheme:-
Any income or income invested in asset which is located in India and acquired from income chargeable to tax under the Income-tax Act for any assessment year prior to the assessment year 2017-18 and which was not offered to tax before the commencement of the scheme. That Income or Income in form of investment can be declared in Scheme. When income declared in the form of investment in any asset, the fair market value of such asset as on 1st June, 2016 computed in accordance with Rule 3 of the Income Declaration Scheme Rules, 2016 shall be deemed to be the undisclosed income.
Rate of tax, surcharge and penalty
On undisclosed Income declarant will pay the Tax @ 30%, surcharge (i.e. Krishi Kalyan Cess) @25% of tax (i.e. 7.5% of undisclosed Income) & penalty @25% of tax (i.e. 7.5% of undisclosed Income).
Time limits for declaration and making payment
Declaration can be made anytime on or after 1st June, 2016 to 30th September, 2016. Last date to make payment is on or before 30th November, 2016.
Form for declaration and approval:-
Step 1:- Declaration will be furnished in Form No.1 to the jurisdictional Principal CIT/ CIT. The declaration may be filed online on the e-filing website of the Income-tax Department using the digital signature of the declarant or through electronic verification code or in paper form before the jurisdictional Principal CIT/CIT.
Step 2:- After receipt of declaration the jurisdictional Principal CIT/ CIT will issue an acknowledgment in Form-2 to the declarant within 15 days from the end of the month in which the declaration is made.
Step 3:- The declarant shall furnish proof of payment made in respect of tax, surcharge and penalty to the jurisdictional Principal CIT/CIT in Form-3.
Step 4:- After receipt of proof of payment of tax, surcharge & penalty jurisdictional Principal CIT/CIT shall issue a certificate in Form-4 of the accepted declaration within 15 days of submission of proof of payment by the declarant.
Who is authorised to sign & submit the declaration:-
|Sl.||Status||Declaration to be signed by|
|1.||Individual||Individual; where individual is absent from India, person authorized by him; where the individual is mentally incapacitated, his guardian or other person competent to act on his behalf.|
|2.||HUF||Karta; where the karta is absent from India or is mentally incapacitated from attending to his affairs, by any other adult member of the HUF|
|3.||Company||Managing Director (MD): where for any unavoidable reason the MD is not able to sign or there is no managing director, by any director.|
|4.||Firm||Managing partner (MP); where for any unavoidable reason the MP is not able to sign the declaration or where there is no MP, by any partner, not being a minor.|
|5.||AOP||Any member of the association or the principal officer.|
|6.||Any other person||That person or by some other person competent to act on his behalf.|
Declaration not eligible in certain cases:-
a) Any person in respect of whom an order of detention has been made under the conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974.
b) Any person in respect of whom prosecution has been launched for an offence punishable under Chapter IX of Chapter XVII of Indian Penal Code, the Narcotic Drugs and Psychotropic Substances Act, 1985, the unlawful Activities (Prevention) Act,1967 and the Prevention of Corruption Act, 1988.
c) Any person who is notified u/s 3 of the Special Court (Trail of Offences Relating to Transactions in Securities) Act, 1992.
d) The Scheme is not applicable in relation to any undisclosed foreign income and asset which is chargeable to tax under the Black Money (Undisclosed Foreign Income and Asset) and Imposition of Tax Act, 2015.
e) Any undisclosed income chargeable to tax under the Income Tax Act for any previous year relevant to A.Y. 2016-17 or earlier years where:-
- i. Notice u/s 142, 143(2), 148, 153A or 153C of the Act has been issued and served on the assessee on or before 31/05/2016 and the assessment for that year is pending. (In form of Declaration the declarant will verify that no such notice has been received by him on or before 31st May, 2016.)
- ii. Search u/s 132 or requisition u/s 132A of Survey u/s 133A of the Income Tax Act has been made in the previous year and time for issue of notices has not expired. (In the form of declaration (Form 1) the declarant will also verify that these facts do not prevail in his case).
- iii. Information has been received by the competent authority under an agreement entered into by the government u/s 90 or 90A of the Income tax Act in respect of such undisclosed Asset.
When Declaration shall be treated as Invalid:-
- i.If the declarant fails to pay the entire amount of tax, surcharge and penalty within the specified date, i.e., 30.11.2016;
- ii. Where the declaration has been made by misrepresentation or suppression of facts or information.
Where the declaration is held to be void for any of the above reasons, it shall be deemed never to have been made and all the provisions of the Income-tax Act, including penalties and prosecutions, shall apply accordingly. Any tax, surcharge or penalty paid in pursuance of the declaration shall, however, not be refundable under any circumstances.
Effect of valid declaration
- i. The amount of undisclosed income declared shall not be included in the total income of the declarant under the Income-tax Act for any assessment year;
- ii. The contents of the declaration shall not be admissible in evidence against the declarant in any penalty or prosecution proceedings under the Income-tax Act and the Wealth Tax Act;
- Immunity from the Benami Transactions (Prohibition) Act, 1988 shall be available in respect of the assets disclosed in the declarations subject to the condition that the benamidar shall transfer to the declarant or his legal representative the asset in respect of which the declaration of undisclosed income is made on or before 30th September, 2017;
- The value of asset declared in the declaration shall not be chargeable to Wealth-tax for any assessment year or years.
- v. Declaration of undisclosed income will not affect the finality of completed assessments. The declarant will not be entitled to claim re-assessment of any earlier year or revision of any order or any benefit or set off or relief in any appeal or proceedings under the Income-tax Act in respect of declared undisclosed income or any tax, surcharge or penalty paid thereon.
- Where any disclosure is made under the Scheme and applicable tax and penalty are paid, no scrutiny or inquiry shall be undertaken in respect of such declarations. Further, declarants will be provided immunity from penalty/ prosecution proceedings under the Income-tax Act, 1961 (the Act) or/ and the Wealth-tax Act, 1957 (the Wealth-tax Act).
How does one value undisclosed assets?
? Where the income chargeable to tax is declared in the form of investment in any asset, thesame will be valued at its FMV on 1 June 2016.
? FMV shall be determined for various assets as tabulated below:
||a) Cost of acquisition;
b) The price that the asset shall ordinarily fetch if sold in the open market on the valuation date (i.e. 1 June 2016), on the basis of the valuation report obtained from a registered valuer
||a) Cost of acquisition;
b) Price as determined in the following manner –
i) The average of the lowest and highest price of such shares and securities quoted on a recognised stock exchange as on 1 June, 2016;
ii) Where there is no trading on 1 June, 2016, the average of the lowest and highest price of such shares and securities on a recognised stock exchange on a date immediately preceding 1 June, 2016 where such shares and securities were traded on recognised stock exchange.
|B. In case of unquoted share and securities Equity shares Higher of –||a) Cost of acquisition;
b) FMV as on 1 June, 2016 determined by the formula A+B?????/(????????)×(????????) , where:
A= book value of all the assets (other than bullion, jewellery, precious stones, artistic works, shares, securities and immovable property) as reduced by:
(a) any amount of income-tax paid, if any, less the amount of income-tax refund claimed, if any, and
(b) any amount shown as asset including the unamortised amount of deferred expenditure which does not represent the value of any asset;
B= FMV of bullion, jewellery, precious stones, artistic works, shares, securities and immovable property as determined in the manner provided in this rule;
L= book value of liabilities, but not including the following amounts, namely:-
(i) the paid-up capital in respect of equity shares;
(ii) the amount set apart for payment of dividends on preference shares and equity shares;
(iii) reserves and surplus, by whatever name called, even if the resulting figure is negative, other than those set apart towards depreciation;
(iii) reserves and surplus, by whatever name called, even if the resulting figure is negative, other than those set apart towards depreciation;
(v) any amount representing provisions made for meeting liabilities, other than ascertained liabilities;
(vi) any amount representing contingent liabilities other than arrears of dividends payable in respect of cumulative preference shares;
PE= total amount of paid up equity share capital as shown in the balance sheet:
PV= the paid up value of such equity shares;
|C. Unquoted Shares and securities (other than equity shares in a company) higher of||a. its cost of acquisition;
b. the price that the share or security shall ordinarily fetch if sold in the open market on the 1st day of June, 2016, , on the basis of the valuation report obtained by the declarant from a registered valuer.
|3. Interest of a person in a partnership firm or in an association of persons (AOP) or a limited liability partnership (LLP) of which he is a member:-||The net assets of the firm, AOP or LLP on the 1st day of June, 2016 shall first be determined and the portion of the net asset of the firm, AOP or LLP as is equal to the amount of its capital shall be allocated among its partners or members in the proportion in which capital has been contributed by them and the residue of the net asset shall be allocated among the partners or members in accordance with the agreement of partnership or association or LLP for distribution of assets in the event of dissolution of the firm, association or LLP, or, in the absence of such agreement, in the proportion in which the partners or members are entitled to share profits and the sum total of the amount so allocated to a partner or member shall be treated as the value of the interest of that partner or member in the partnership or association.
Net assets of the firm, AOP or LLP for this purpose is calculated as (A+B?????), determined in the manner provided under ‘2. Shares & securities’ above.
|4. Any other asset :- The valuation shall be higher of||a. its cost of acquisition or the amount invested;
b. the price that the asset would fetch if old in the open market on the 1 day of June, 2016.
Where investment in any asset is partly from an income which has been assessed to tax prior to AY 2017-18, the FMV of the asset as determined above shall be reduced by an amount which bears to the value of the asset as on the 1st day of June, 2016, the same proportion as the assessed income bears to the total cost of the asset.
The valuation report is required to be obtained but the same is not mandatorily required to be filed along with the declaration form. However, while e-filing the declaration on the departmental website a facility will be available.
- Question No.1: 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 01.06.2016, 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 No.2: 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 No.3: 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 31st day of May, 2016. The declarant is required to file a declaration regarding receipt of any such notice in Form-1.
- Question No.4: 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 Rs.500 out of which Rs.200 relates to income assessed to tax in A.Y. 2012-13 and Rs.300 is from undisclosed income pertaining to previous year 2013-14. The fair market value of the asset as on 01.06.2016 is Rs.1500.
The undisclosed income represented by this asset under the scheme shall be:
1500 minus (1500 X 200 ) = Rs.900
- Question No.5: 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 No.6: 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 No. 7: 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 No.8: 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 No.9: 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 No.10: 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 No.11: 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 No.12: 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 No.13: 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 No.14: 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.
DIRECT TAX DISPUTE RESOLUTION SCHEME-2016
India image get affected in business community because of the long lasting litigation goings on in Tax regime. To reduce the litigation and give a tax friendly regime and environment of distrust in addition to increasing the compliance cost of the tax payer and administrative cost of government. There are over 3 lac tax cases pending with the commissioner of Income tax (Appeal) with disputed amount of tax of about 5.5 lac Crores. In order to reduce the huge backlog of cases and to enable the Government to realise its dues expeditiously, a New Scheme “Direct Tax Dispute Resolution Scheme, 2016 has been introduced. This Scheme provides an opportunity to taxpayers to settle their past cases by making payment of the prescribed tax, interest or penalty in respect of any tax arrear or specified tax.
Scope of Scheme:-
Appeal pending before the CIT(A) on 29/02/2016 under direct tax is covered under this scheme.
A declarant can file a declaration in relation to tax arrears or specified tax in respect of which appeal is pending before the CIT(A).
a) Tax Arrear
Amount of tax, interest or penalty determined under the IT Act or WT Act, in respect of which appeal is pending before the CIT(A) or CWT(A) as on 29.02.2016. The pending appeal could be against an assessment order or a penalty order.
b) Specified Tax
Tax determined in consequence of or is validated by an amendment made with retrospective effect in IT Act or WT Act, for a period prior to the date of enactment of such amendment and a dispute in respect of which is pending as on 29.02.2016.
Time limits for declaration
Declaration can be made anytime on or after 1st June, 2016 to 31th December, 2016
Form for declaration and Steps:-
Step 1:- Declaration will be furnished in Form No.1 to the Commissioner of Income Tax in respect of “Tax Arrear” and “Specified Tax”. In case of “Specified Tax” undertaking to voluntarily waive all rights in respect of specified tax, to seek or pursue any remedy or any claim in respect of specified tax in Form No.2 will also be filed with Form No.1.
Step 2:- After receipt of declaration the jurisdictional Principal CIT/ CIT will issue an Certificate of intimation in Form-3 to the declarant within 60 days from the receipt of declaration. In this intimation CIT direct the declarant to pay the assessment year wise tax arrears/ specified tax amount within 30 days from the date of receipt of this certificate.
Step 3:- The declarant shall furnish Intimation of payment alongwith Challan details to the jurisdictional Principal CIT/CIT in Form-4 within 30 days from the date of receipt of certificate in form No.3. Any amount paid in pursuance of declaration shall not be refundable.
Step 4:- After receipt Intimation of payment in form No.4 jurisdictional Principal CIT/CIT shall issue a certificate in Form-5 for full and final settlement of “Tax Arrears” and in case of “Specified Tax” certificate will be issued in Form No.6. There is no time limit is fix for issuing certificate.
Amount to be Paid & Immunity:-
|Category||Amount To be Paid||Immunity|
||a) Prosecution and Penalty proceedings
b) Interest leviable after the date of assessment
c) Penalty for remaining 75%
||d) Prosecution proceedings
e) Penalty and Interest
Scheme shall not apply in following cases:-
1) Cases where prosecution has been initiated before 29.02.2016.
2) search or survey cases where the declaration is in respect of tax arrears
3) cases relating to undisclosed foreign income and assets
4) cases based on information received under DTAA u/s 90 or 90A where the declaration is in respect of tax arrears
5) Person notified under Special Courts Act, 1992
6) Cases covered under Narcotic Drugs and Psychotropic Substances Act, Indian Penal Code, Prevention of Corruption Act or Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974