Income Declaration Scheme

The Income Declaration Scheme was announced in the Finance Bill 2016 by the Finance Minister as a limited period compliance window for domestic taxpayers to declare undisclosed income. In this article, we look at the Income Declaration Scheme in detail.

Overview

Income Declaration Scheme allows domestic taxpayers to declare undisclosed income or income represented in the form of any asset and clear up their past tax transgressions. The scheme allows declaration of income by any person of his undisclosed income by paying tax at 30% , surcharge at 7.5% and penalty at 7.5%, which totals to an effective tax rate total of 45% of the undisclosed income.

Eligibility

All domestic taxpayers are eligible for the Income Declaration Scheme. Hence the following categories of persons or entities can file for disclosing undisclosed income under this scheme:

Individual
Hindu Undivided Family
Company (Private Limited / One Person Company / Public Limited / Other Types)
Firm (Partnership Firm / LLP)
An association of persons / a Body of Individuals, whether incorporated or not.
A local authority and every type of artificial juridical person.

However, the following persons shall not be eligible:

Any person for whom an order of detention has been made under the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974.
Any person for whom proceedings for prosecution for any offences punishable under Chapter IX or Chapter XVII of the Indian Penal Code, the Narcotic Drugs and Psychotropic Substances Act, 1985, the Unlawful Activities Prevention Act, 1967 and the Prevention of Corruption Act, 1988 are pending.
Any person notified under section 3 of the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992.

Benefits of Declaration

On making a valid declaration of undisclosed income under the Income Declaration Scheme and the payment of relevant tax/penalty, the person will be exempted any scrutiny or enquiry under Income Tax Act or Wealth Tax Act. Further, the declarant would also have immunity from prosecution and the Benami Transaction Act, 1988, subject to certain conditions. The following is the list of benefits after making a valid declation:

The amount of undisclosed income declared would not be included in the total income of the declarant for any assessment year under the Income-tax Act.
Anything contained in the declaration made by the person would not be admissible in evidence against the declarant for the purpose of any proceeding relating to imposition of penalty or for the purposes of prosecution under the Income-tax Act or the Wealth-tax Act, 1957
The person could enjoy immunity from the Benami Transactions (Prohibition) Act, 1988 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.
Declaration of undisclosed income will not affect the finality of completed assessments. A declarant under this Scheme shall not be entitled, in respect of undisclosed income declared or any amount of tax and surcharge paid thereon, to re-open any assessment or reassessment made under the Income-tax Act or the Wealth-tax Act, 1957 or claim any set off or relief in any appeal, reference or other proceeding in relation to any such assessment or reassessment.

Procedure for Declaring Income under Income Declaration Scheme

Declaration of undisclosed income under the Income Declaration Scheme can be made using Form 1 as prescribed under Rule 4 of the Income Declaration Scheme Rules, 2016. Taxpayers should observe that Form 1 under the Income Declaration Scheme can be submitted:

Online using a digital signature
By transmission of data in the form electronically under the electronic verification code.
In print form to the concerned Principal Commissioner

Time Limit

The last date for filing Form 1 under the Income Declaration Scheme is September 30, 2016.

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Frequently Asked Questions

Common questions about Income Declaration Scheme 2016 for Domestic Taxpayers.

All domestic taxpayers, including individuals, Hindu Undivided Families (HUFs), companies, firms, associations, local authorities, and other artificial juridical persons are eligible to declare undisclosed income under this scheme. However, certain persons such as those with detention orders or pending prosecution for specific offenses are not eligible.

The effective tax rate for declaring undisclosed income under the Income Declaration Scheme is 45%, which includes a tax of 30%, a surcharge of 7.5%, and a penalty of 7.5%.

The key benefits include exemption from scrutiny or inquiry under the Income Tax Act or Wealth Tax Act, immunity from prosecution, and protection from the Benami Transactions (Prohibition) Act, 1988 for declared assets, subject to certain conditions. The declared income will not be included in the total income for any assessment year, and the value of declared assets will not be chargeable to wealth tax.

Undisclosed income can be declared by filing Form 1 under the Income Declaration Scheme Rules, 2016. This form can be submitted online using a digital signature or electronic verification code, or in print form to the concerned Principal Commissioner.

The last date for filing Form 1 under the Income Declaration Scheme is September 30, 2016.

No, the declaration of undisclosed income will not affect the finality of completed assessments. The declarant cannot reopen or claim any set-off or relief in relation to such assessments based on the declared income or tax paid.

No, the scheme provides immunity from prosecution under the Income Tax Act, Wealth Tax Act, and the Benami Transactions (Prohibition) Act, 1988 (subject to conditions). However, it does not provide immunity from prosecution for certain offenses under the Indian Penal Code, Narcotic Drugs and Psychotropic Substances Act, Unlawful Activities Prevention Act, and Prevention of Corruption Act.

No, anything contained in the declaration made by the person will not be admissible as evidence against the declarant for the purpose of imposing penalties or prosecution under the Income Tax Act or Wealth Tax Act.

Yes, the scheme provides that if the declared undisclosed income is in the form of an asset held benami, the benamidar (the person in whose name the asset is held) must transfer the asset to the declarant or their legal representative by September 30, 2017.

No, the declaration of undisclosed income under the Income Declaration Scheme will not affect future assessments or reassessments under the Income Tax Act or Wealth Tax Act.