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Voluntary Income Declaration Scheme of 2016 (Closed)
In 2016, the Narendra Modi led government introduced the Income Declaration Scheme in India to uncover black money and to persuade tax evaders to file Income Tax Returns on their earnings. Under the scheme, individuals who had not revealed their actual assets or income to the government in earlier assessment years could declare them and, instead of the hefty defaulter’s penalty fees, pay a discounted tax of 45%. The declaration window ran from 1 June 2016 to 30 September 2016, when the scheme closed.
If a company or an individual was caught red-handed by the government for concealed assets, the total of that asset was added to the income tax slab and the defaulter also had to pay a hefty fine.
Ways in which Tax Evasion Affects the Economy of a Nation
Tax evasion causes huge loses to a nation’s economy as it deprives the government of resources which could have been otherwise utilized in undertaking developmental projects or for providing its citizens with the basic needs. When an Indian citizen fails to pay his/her taxes the undesirable burden falls upon all the regular tax payers who are levied with higher taxes to compensate for the revenue crunch.
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What were the Key Attributes of Income Declaration Scheme 2016?
Under the Income Declaration Scheme, a defaulter was not able to utilize the scheme if they had been issued a notice by the Tax Department or Authorities. The notices served could be in relation to evaluation of the tax evader by the tax department, reassessment proceeding or any such proceedings that were pending.
The Income Declaration Scheme also stated that its benefits were not applicable to those claimants upon whom the tax authorities had gained information regarding illegal transactions under tax information-exchange treaties.
- The validity of Income Declaration Scheme 2016 was between June 1, 2016 and September 30, 2016. The scheme was not extended and closed on September 30, 2016.
- Income tax and wealth tax were both applicable in this scheme.
- The percentage of chargeable tax was 45% – 30% of income tax rate + Krishi Kalyan Cess on 25% of this tax (7.5%) + penalty on 25% of the tax (7.5%).
- Within 60 days from the day of declaration of assets, the individual needed to pay the taxes.
- Upon declaration of additional income, if an individual/company failed to pay the taxes before the deadline then the declaration became invalid. In addition to that, an income tax rate as per the previous tax year would be charged.
- An individual or a company could make only one declaration; even if multiple declarations were made, only the first declaration was taken into consideration.
- Fabricated declarations were considered invalid.
- On timely payment of taxes and penalties after declaration of income/assets, the amount was considered as disparate from the normal income tax cycle and was not added to the declarant's income in any assessment years.
- If a part of the income or wealth declaration were assets, then their fair market value as on June 1, 2016, was accounted as the undisclosed income.
- Declared assets/income of a firm/company were not considered while calculating the wealth or income of its partner firms.
- Undisclosed incomes from investments on assets could not be considered under the Benami Transactions Act, if the said asset was transferred to the declarant or their legal representative.
- Declaration under this scheme could not be used for charging additional penalties and court cases against an individual/firm.
- The declaration had to be produced before The Principal Commissioner or Commissioner of Tax within the relevant jurisdiction.
Categorizing Declarant and Eligibility of an Authorized Representative
Section 2(31) of the Income Tax Act identified certain eligibility criteria for the Income Declaration Scheme.
It also categorised the authorized representative for making the declaration on behalf of the claimant in special cases
- Individuals: If the declarant was in India then he/she could sign the declaration themselves, however in cases when the declarant was out of India or he/she was mentally incapacitated then an authorized representative could sign the declaration on their behalf.
- The Hindu Undivided Family or HUF: The authorized declarant was the Karta of HUF but if the Karta was not in India during that time then any adult member of HUF could be the authorized representative.
- Firms: The managing partner of the firm was the rightful legal declarant but any of the partners could also represent as the declarant.
- Companies: The declaration had to be signed by the Managing Director of the company or by a director of the company if due to unavoidable circumstances the MD could not be present for the declaration.
All these categories of entities could declare additional income up to the assessment year 2016-17, through the Income Declaration Scheme. Taxpayers who made the declarations were exempted from inspections, reassessments by the tax authority or from being enquired and prosecuted.
Non-Eligibility Factors for Income Declaration Scheme
- Anyone who have been issued notice under Sections 142(1), 143(2), 148, 153A or 153C (example: those who been served pre-assessment inquiry notice, scrutiny notice, income escaping assessment notice, notice on assessment in case of search or requisition and notice on assessment of income of another person).
- Anyone against whom an ongoing search or survey is being conducted.
- Involvement in cases under the Black Money Act, 2015.
- Person notified under Special Court Act, 1992.
- Involvement in cases under Indian Penal Code, Narcotic Drugs and Psychotropic Substances Act, 1985, Unlawful Activities (Prevention) Act, 1967 or Prevention of Corruption Act, 1988.
The introduction of the Income Declaration Scheme was a way of offering pardon to tax defaulters, offering a chance to come forward with the facts. The scheme did not provide complete immunity to defaulters; it offered a cut-down on the tax penalties levied upon them. The scheme closed on 30 September 2016 and no fresh declarations can be made under it.
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