What is the Income Declaration Scheme, 2016?
Black money voluntary disclosure schemes and amnesty schemes for tax evaders wanting to come clean are not new to India. Till the 1990s, black money and tax evasion were largely considered taboo; but with the Voluntary Disclosure of Income Scheme (VDIS) floated by the then Finance Minister P Chidambaram, between June and December 1997, amnesty and tax evasion followed by disclosure has become the norm rather than the exception.
This year again, the Narendra Modi led NDA government has launched an Income Declaration Scheme (IDS) 2016. The scheme has been effective from 1 June, 2016 and is now nearing closure (ends on 30 September, 2016). According to the terms of this IDS 2016, any income tax assessee may file returns for assets or income that had not been disclosed in the ITR of previous years. This means that the taxpayer may disclose all income that has remained undisclosed hitherto and thereby regularize their wealth.
The NDA government, Finance Minister Arun Jaitley, in particular, has been rather stringent when it comes to tax evasions and wealth stashed away overseas. In the Union Budget 2016, FM Jaitley announced that a 4 month long amnesty scheme would be given to domestic tax evaders and black money holders. Those who come clean will not be prosecuted but will be required to pay the tax applicable on the income, a penalty and cess. The total tax thus levied adds up to about 45 percent of the income disclosed under the IDS 2016.
Highlights of the IDS 2016
- The Income Declaration Scheme 2016 aims to bring in any income undisclosed by taxpayers in previous years under the tax system thus curbing black money and tax evasion in the country.
- The asset or income disclosed under the IDS 2016 should have been taxable in any assessment year prior to the current (2017-18).
- A person coming forward and declaring such income or assets hitherto undisclosed shall be provided immunity from prosecution or penalty under the Wealth Tax Act of 1957, the Income Tax Act of 1961, and the Benami Transactions (Prohibition) Act, 1988.
- The person making use of the IDS to declare income or assets will be required to pay tax amounting to 30 percent of the value of the undisclosed income. In addition to this, the person will have to pay a surcharge of 25 percent. Apart from this a penalty of 25 percent of the tax amount will also be levied. This makes the total payment about 45 percent of the undisclosed income.
- If, however, the declarant is found to have paid this 45 percent tax, penalty, and surcharge payment from any other undisclosed income, he/she will not be given any immunity.
- Initially, the government had announced that the IDS declaration must come in by 30 September, 2016 and the entire payment of the tax, interest, and penalty must be deposited by 30 November, 2016. A few days ago, however, the government has decided to provide an extension of deadline on the payment. While the declaration date still remains end September 2016, the payment of tax, surcharge, and penalty may be made in a staggered fashion. Now, a minimum payment of 25 percent of the amount payable must be made before 30 November, 2016. Another installment of 25 percent must be made by 31 March, 2017. The remaining amount must be paid by 30 September, 2017, giving declarants an entire year to come up with the amount.
The IDS brings along a guarantee of immunity for the declarant. According to a government announcement, “no public servant shall produce before any person or authority any such document or record or any information or computerized data or part thereof as comes into his possession during the discharge of official duties in respect of a valid declaration made under the scheme”. This means that the material disclosed under the IDS shall be treated as confidential. Such ‘classified material’ will not be produced in court or used to conduct any proceeding except in to investigate or prosecute any other tax related offence. If the IDS is utilized by a company or partnership firm, the directors or partners are also guaranteed such immunity.
How is the IDS Different?
The Income Declaration Scheme of 2016 is quite different from other amnesty schemes offered by previous governments.
The most important difference is that the IDS 2016 does not offer a lower tax rate for disclosures unlike previous schemes. Between the years 1951 and 1997, the Indian government had floated about 10 different amnesty schemes which were intended to bringing back black money into regular accounts. Most of these schemes offered a major discount on the tax amount to be paid upon declaration. While some of these VDIS (voluntary disclosure of income schemes) were touted to be major successes, they were a great loss of revenue to the government. The 1997 VDIS, for example, managed to garner about INR 33,000 crore but this is just about half of what the IT earnings on the declared income should have been. They also caused much discontent among the honest taxpayers who felt shortchanged. Evaders going scot free and paying lower taxes periodically is not a great boost to the morale of conscientious taxpayers.
The current Income Declaration Scheme is quite different in the sense that it does not offer tax rebates or discounts. Rather, those who avail of it will be required to pay a higher tax amount. The IDS is not only applicable to those who have evaded taxes but also to those who may have unwittingly failed to declare an income such as the capital gains tax on income from sale of an inherited house or land.
In his budget speech FM Jaitley also said that after the 4 month window, any domestic tax evader will be punished with 90 percent tax and an imprisonment up to 7 years.