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Comprehensive Guide to Income Declaration Scheme 2016

Guidelines, features, deadlines & procedures for making declarations under the 2016 Income Declaration Scheme. Scheme overview, eligibility, and declaration processes covered in detail.

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Comprehensive Guide to Income Declaration Scheme 2016

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  1. Income Declaration Scheme, 2016 CA SAKSHI GOPAL AGGARWALB.com, FCAPartnerSakshi Aggarwal & Co. Raipur

  2. Income Declaration Scheme, 2016 Scheme Governed by: • Chapter IX of the Finance Act, 2016 [Sec 181 to Sec199]. • Notification No. 33/2016-Income Declaration Scheme Rules 2016. • Circular No.16/2016- Explanatory Notes • Circular No. 17/2016- Clarification in the form of FAQ.

  3. KEY FEATURES OF THE SCHEME Who can make the declaration? • All persons can declare their “undisclosed income” whether in the form of investment in assets or otherwise. Time lines • IDS shall commence from 1st June 2016 and is available up to 30th Sep 2016 to make the declaration. • Applicable Tax +KKC + Penalty shall be paid up to 30th Nov 2016.( If the declarant fails to pay tax + KKC + Penalty within the stipulated period it shall be deemed that such declaration has never been filed and such undisclosed income shall be chargeable to tax under the Income Tax Act in the previous year in which such declaration is made.)

  4. What can be covered in the declaration? • Form No. 1 • Designated Principal Commissioner of Income Tax/ Commissioner of Income Tax. • Any income or Income in the form of Investment in any assets located in India. • Where the income chargeable to tax is declared in the form of investment in any asset, the fair market value of such asset as on 1st June, 2016, shall be deemed to be undisclosed income.(FMV of such assets shall be determined in the prescribed manner) • Any income chargeable to tax under the Act for any F.Y. prior to F.Y. 2016-17 for which declarant • failed to furnish Return of Income u/s 139 or • failed to disclose such income in Return of Income. • failed to declare fully and truly all material facts necessary for the assessment or otherwise. • No deduction in respect of any expenditure or allowance shall be allowed against the income in respect of which declaration under this scheme is made.[Section 183(4)] • Undisclosed Income declared (and tax + KKC + Penalty has been paid on it) cant be included in the total income of the relevant A.Y.[Section 188] • Tax/KKC/Penalty paid shall not be refundable.[Section 191]

  5. Scheme not to apply to certain cases (Sec 196) No declaration can be made in respect of any undisclosed Income under given cases • A notice U/s 142, 143(2), 148, 153A or 153C has been issued before 01/06/2016 in respect of A.Y. for which proceedings are pending.(Circular No 17 FAQ; Q. No. 3) • A search has been conducted U/s 132 or a survey has been carried out U/s 133A in a previous year and the time limit for issuance of notice U/s 143(2), 153A or 153C for the relevant A.Y. has not expired . (Circular No 17 FAQ; Q. No. 6 & 7) • Undisclosed Foreign Income and asset which is chargeable to tax under Black Money (Undisclosed Foreign Income and assets) and imposition of Tax Act, 2015. • Proceedings for prosecution of any offence punishable under • Chapter IX (offences relating to public servant), Chapter XVII (Offences against property ) of Indian Penal Code • The Unlawful Activities (Prevention) Act or The Narcotic Drugs and Psychotropic Substances Act or Prevention of Corruption Act are pending.(Circular No 17 FAQ; Q. No. 11)

  6. Procedural Aspects Since an embargo has been placed on making any other declaration, the revision of declaration already filed is not possible. Also different declarations for different assessment years can not be filed. One declaration to be filed for multiple assessment years as per Point no. 5 of the Form-1. Further if a person files a declaration in representative capacity say as Karta of HUF, whether he can file another declaration in Individual capacity is not clear from the Scheme Declaration in Form No. 1 to be filed up to 30/09/2016 with the jurisdictional PCIT/CIT either in paper form or through e- filing using digital signature or through electronic verification code( person who can sign the declaration is also defined U/s 186 of the FA 2016). One person can file only one declaration. The PCIT/CIT shall issue the acknowledgement within 15 days from the end of month in which declaration was filed. Proof of payment tax+ KKC + Penalty shall be furnished by the declarant to such PCIT/ CIT in the Form No. 3. PCIT/ CIT shall grant a certificate in form No. 4 within 15 days of submission of form No. 3.(As per Circular No. 17/2016 dated 20-05-2016, in Q.No.12, it is mentioned that 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.)

  7. Declaration by misrepresentation of facts to be void & shall be deemed never to have been made under this scheme and all the provisions of the Act including penalties and prosecution shall apply accordingly.[Section 193]

  8. Determination of Fair Market Value (As per Rule3)

  9. Determination of Fair Market Value (As per Rule3) Cont…

  10. Where 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 As per Rule 3(2), The fair market value of the asset determined in accordance with sub-rule (1) 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 . An Illustration in this regard has been provided byCircular No. 17/2016 dated 20-05-2016 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 200/500) = Rs.900

  11. Consequences of not making declaration under Income Declaration Scheme • Normally under VDIS Scheme, there are no harsh consequences of not disclosing the Income and the assessee is not placed at a position inferior to that he would be if there was no VDIS. But this scheme as per Section 197(c) says: • Where any income has accrued, arisen or received or any asset has been acquired out of such income prior to commencement of this Scheme, and no declaration in respect of such income is made under this Scheme,— • such income shall be deemed to have accrued, arisen or received, as the case may be; or • the value of the asset acquired out of such income shall be deemed to have been acquired or made, • in the year in which a notice under section 142, sub-section (2) of section 143 or section 148 or section 153A or section 153C of the Income-tax Act is issued by the Assessing Officer, and the provisions of the Income-tax Act shall apply accordingly. • As per Press Release dated 14-05-2016, Non-declaration of undisclosed income under the Scheme, will render such undisclosed income liable to tax in the previous year in which it is detected by the Income tax Department • (Circular No 17 FAQ; Q. No. 9)

  12. Capital Gain on Transfer of Asset which subject matter of Declaration under the Scheme • Cost of Acquisition • As per Section 49(5), introduced by Loksabha on 29-04-2016 at the time of passing Finance Bill 2016: • ‘‘(5) Where the capital gain arises from the transfer of an asset declared under the Income Declaration Scheme, 2016, and the tax, surcharge and penalty have been paid in accordance with the provisions of the Scheme on the fair market value of the asset as on the date of commencement of the Scheme, the cost of acquisition of the asset shall be deemed to be the fair market value of the asset which has been taken into account for the purposes of the said Scheme.’’. • As per Circular 17/2016 also cost of acquisition for the purpose of Capital Gains shall be the fair market value as on 01.06.2016 • b) Period of Holding • As per Circular 17/2016 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)

  13. Effects of valid declaration • The amount of undisclosed income declared shall not be included in the total income for any A.Y.[Section 188] • The contents of the declaration shall not be admissible in evidence against the declarant in any penalty or prosecution proceeding under the IT Act/ Wealth Tax Act. • Assets specified in declaration shall be exempt from Wealth Tax. • Immunity from Benami Transaction Act, 1988, subject to transfer of assets to the declarant or his legal representative up to 30.09.2017. [Section 190] • Declaration of undisclosed income will not affect the finality of completed assessment. [Section 189] • Where a person declares only a part of his undisclosed income declared under the scheme and no immunity will be available in respect of income which has been not declared.

  14. Confidentiality of the Declarations As per Section 195 of Finance Act, 2016 section 138 is applicable to declarations made under the Income Declaration Scheme. As perCircular No. 17/2016 dated 20-05-2016, therefore, the information in respect of declaration made is confidential as in the case of return of income filed by assesses.

  15. CA Sakshi Gopal Aggarwal SF- 18, Millennium Plaza, Bans Tall Road, Raipur. 492001 Cell: 94252-07660 E-mail: aggarwalsg@rediffmail.com

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