Another much awaited action against “Black Money” had taken place with the introduction of Income Declaration Scheme, 2016, incorporated as Chapter IX in the Finance Act, 2016 and was announced under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, commonly known as Foreign Black Money Law. In 1997 a similar scheme was launched and was called VDIS (Voluntary Disclosure of Income Scheme). After a period of 18 years, last year in 2015 the government came up with a three-month compliance window for foreign black money holders with the decades old motive to free this country from black money. And now the Income Declaration Scheme aims to warn the black money holders again and in another way to give them a better opportunity for the disclosure of domestic black money within the stipulated of time of compliance window starting from June 1, 2016 till 30 September, 2016.
This scheme is a golden chance in the sense that those who will not declare their black income will frightfully suffer as the consequences of non-compliance would cost them heavily. The scheme is applicable to unaccounted domestic income and assets which were earned in any year prior to the financial year 2016-17. The following table clearly shows that if the black money holders do not disclose the income and later caught under the Income Tax Act, 1961, then they shall be liable to pay for the deed enormously.
The scheme is a one-time opportunity for the declarants in the sense that it will provide an immunity from prosecution, inquiry and scrutiny under the Benami Transactions(Prohibiton) Act, 1988, Income Tax Act and Wealth Tax (now scrapped). The declarants are given an option to declare their income through official e-filing website of the Income Tax Department or before regional Principal Commissioners of I.T. Such declaration would be kept as a secret if it is made in the given period. And further if the declaration made is held as void, the provisions of the Income Tax Act will apply in respect of such income. The declaration will become void if the declarant fails to pay the entire amount of tax, penalty and surcharge within the stipulated time. The scheme will not be applicable to the undisclosed income which has been already assessed and the case of which is pending before an Appellate Authority.
As compared in the above mentioned table, it can be seen that there is a huge difference in the costs of the tax rate, interest, and penalty involved in declaring the income under this scheme and the Income Tax Act respectively. In totality the declarant shall be liable to pay 45% of the income/assets declared in the form of tax and penalty, while on the other hand the total impact would amount to 120% + applicable interest, under the provisions of Income Tax Act.
As far as the confidentiality is concerned, the declarations made under the scheme would be kept confidential. Since the scheme incorporates the provisions of section-138 of the Income Tax Act relating to disclosure of the information in respect of assesses, therefore the scheme provides for the non-disclosure agreement in itself.
Now the question arises whether a person declaring only a part of his undisclosed income under the scheme, would get immunity in respect of the part income declared or not. It is to be noted that the scheme is favorable for the declarants in this case too. The immunity will be available in respect of the disclosed income. Most importantly it is to be noticed that if the undisclosed income is acquired through corruption, the scheme shall not apply as per Section-196(b) of the Finance Act, 2016 as the scheme is not applicable in relation to prosecution of any offence punishable under the Prevention of Corruption Act, 1988.
Recently in an interview Finance Minister Arun Jaitley said, “When the black money law with regard to foreign assets was passed, I had said please declare and sleep well. Now, those who didn’t declare and their names have become public, either in Panama Papers or otherwise, I think they are now having sleepless nights”. In his words, if the black money holders want to sleep well they should better declare their undisclosed income under this scheme and take it as a great opportunity.