Income Declaration scheme

Income Declaration scheme (for making your black money white officially )

The government of India has taken an initiative to channelize economy’s black money into any kind of productive use. It is not a rare case when people avoid disclosing the real income to evade income taxes. This time the government has stepped forward to make the most out of these undisclosed income amounts of the common people. As per the latest scheme namely Income declaration scheme 2016, people who did not show up their real income in the previous year can now come forward and disclose their hidden income. They can show the undeclared income in any form like investment, asset or anything like this. According to the income tax rule, the tax payable on the undisclosed income will be 45%.

Income Declaration scheme 2016

Features of the Income Declaration scheme

The income declaration scheme 2016 has some salient features. The features are as follows

  • The scheme is for the people who did not disclose their real income in the previous financial year
  • The scheme will last for 4 months. From the month of June to September 2016 is the time to file the declaration of the undisclosed income.
  • These undeclared incomes can be in the form of investment, asset or any such thing.
  • These investments and assets under this scheme will not be considered under the wealth tax.
  • Those who are enrolled under this scheme will not be enquired or scrutinised by the income tax department or wealth tax department.
  • Though assets and investments can be shown as the income under this scheme, but foreign assets and assets which fall under the Black Money Act will not be considered under this scheme.
  • If the eligible person denies declaring his / her undisclosed income under this scheme, then he / she might be prosecuted under the income tax law.
  • In Finance Act, 2016, under section 196, the regulations and rules can be found for the situations where the said person is not eligible for the scheme or the scheme will not be applied on any person.
  • If the concerning person or company try to evade taxes, penalties or surcharges by suppressing facts, then the declaration might not be valid.

Eligibility for making the declaration

As per the Income Tax Act, under section 2(31), there are 7 categories of people who can file the declaration under this scheme. Some other conditions where people can file the declaration are

  • If the person is failed to mention the income while filing the return under the section 139 of IT Act.
  • If the person is failed to declare his / her income for return under IT Act before commencement of Income Declaration Scheme 2016.
  • If the person has intentionally suppressed the facts to evade taxes or penalties or surcharges while filing the return in the previous year.
  • If the person is failed to disclose partial or full facts regarding income that are required for the assessment

Some more facts about the eligibility

Some of the citizens of India are not eligible to file declaration under the scheme even if they have undisclosed income. These people are

  • People who are involved in such cases filed under the black money act
  • People who own foreign assets or income related to foreign activities
  • People who are involved in cases filed under Special Court Act
  • People or companies that are involved in cases under IPC, Narcotics Dug, Psychotropic Substance Act, Prevention of Corruption Act, Unlawful activities Act and so on.
  • People or companies where any kind of notice had been issued under the following sections 142(1), 143(2), 148, 153A, 153C

All these people or circumstances are not eligible to file a declaration under this scheme.

Applicable Tax rates on the income under this scheme

Once a declaration is filed, the concerning person has to pay the taxes, penalties or surcharges according to the following tax rates.

  • Income tax on the declared income at the rate of 30%
  • 25% of the rate of income tax on the declared income that is 7.5% needs to be paid as Krishi Kalyan Cess
  • 25% of the rate of income tax on the declared income that is 7.5% needs to be paid as penalty.
  • Total of (30 + 7.5 + 7.5) = 45% of tax must be paid on the declared income.

The signing authority under Income Declaration scheme

The declaration must be signed by the proper authority. This kind of declaration can be filed by anyone but it has to be signed by the proper authority. The following authorities need to be signed the declaration before filing it:

  • Company: Managing director or any other board of directors (if MD is absent)
  • Firm: Managing partner or any other partner (if managing partner is absent / out of India / mentally harmed)
  • HUF: the Karta of the HUF or any other adult member (If the karta is absent / out of India / mentally harmed)
  • Individual: by self or by any other authorised representative (if he / she is absent / out of India) or guardians (if the person is mentally incapable)

Benefits of the scheme

As the scheme is all about the declaration of the undisclosed income and such most of the people get confused whether to disclose their income or not as it can cost a lot in face of taxes. But the scheme is designed carefully so that the people who are filing declaration under this scheme can get the most out of this scheme. There are few numbers of benefits one can get by filing a declaration under this scheme. They are as follows

  • The person will be freed from any sort of prosecution
  • The declared income will not be added to the concerning person’s total income that is already filed under income tax
  • If the undeclared income is shown as an asset there will not be levied any wealth tax on the assets.
  • There will not be any special enquiry or scrutiny or anything like this by the income tax officials or wealth tax departments on the asset and income under this scheme
  • The declared income will not affect any of the already completed tax assessments for any previous or future assessment years.
  • The declaration form under this scheme can be easily filed online, so one does not need to run from here to there to submit the form.
  • The person or the company will be exempted from the Benami Transactions Act, 1988

Value of the Asset under this scheme

If the declared income is shown as a form of asset then the question arises that what will be the value of that asset! According to the scheme the value will be calculated as per the fair market value of the asset on the date of commencement of the declaration. This fair market value will be calculated for any asset as per the rules and regulation of asset market or as prescribed under the income tax act. While determining the fair market value no allowances or deduction will be made. The exact fair market value will be considered while filing the declaration.

Frequently for Income Declaration scheme

Since the budget 2016-17 was out and the scheme is declared, there are many speculations and confusions are roaming around. Some of the common questions are

  • Duration of the declaration: 4 months (From June 1st to September 30th 2016)
  • Last date of submission: 30th November 2016
  • Multiple declaration form: Not possible, only one declaration form can be filed under an individual, HUF, Firm or company in a year.
  • Tax Refunds: there is no tax refunds are involved under this scheme. Once the tax payment is done, no refunds will take place at any point of time.
  • The payment should be made within 2 months of filing the declaration. The time is subjected to change if the Gazetted officials from Central Government wish to. As of now the time has set to 2 months, i.e. 30th November 2016. 

Other schemes related to Income Tax scheme 2016

There is another scheme launched namely direct tax dispute resolution scheme, 2016 which allows people to file a declaration regarding tax dues. People can file the declaration under this scheme and clear the tax dues within the said time to avoid the prosecution.

Income Declaration Scheme 2016 – at a glance

Issues Solution
Launched on 1st March 2016
Effective from 1st June 2016
Duration 4 months (till 30th September 2016)
Last Date 30th November 2016
Form submission Online and offline
Rate of tax 45% (IT-30%, Krishi Kalyan Cess – 7.5%, Penalty-7.5%)
Forms of undisclosed income Asset, investment and such, as per finance bill 2016
Exemptions Income Tax and wealth tax
Excluded Black money act, foreign assets, income related to foreign activity
Number of declaration under the scheme One
Tax refunds None
Deduction/allowances while calculating FMV None
Signing authority Self (individual), Karta(HUF), Managing partner (Firm), Managing Director (Company)

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