Money & Banking
All You Wanted to Know About Income Declaration Scheme 2016
Keen to unearth black money, the Indian government has unveiled a new scheme for domestic taxpayers in a limited period compliance window to declare their undisclosed income whether in the form of investment in assets in India or otherwise, and clear up their past tax transgressions. Such people would have to pay a tax of 45%, including 30% basic tax, 7.5% as Krishi Kalyan Cess and 7.5% of the undisclosed income as penalty.
 
The Income Declaration Scheme, 2016 (the Scheme) has been introduced as Chapter IX of the Finance Act, 2016. The Scheme is effective from 1st June to 30 September 2016. 
 
Here are answers to some questions that a taxpayer may have about the scheme
 
Question: Where an undisclosed income in the form of investment in asset is declared under the Scheme and tax, surcharge and penalty is paid on the fair market value of the asset as on 1 June 2016, then will the declarant be liable for capital gains on sale of such asset in the future? If yes, then how will the capital gains in such case be computed?
Answer: Yes, the declarant will be liable for capital gains under the Income-tax Act on sale of such asset in future. As per the current provisions of the Income-tax Act, the capital gains is computed by deducting cost of acquisition from the sale price. However, since the asset will be taxed at its fair market value the cost of acquisition for the purpose of Capital Gains shall be the fair market value as on 01.06.2016 and 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).
 
Question: Where a notice under section 142(1)/ 143(2)/ 148/ 153A/ 153C of the Income-Tax Act has been issued to a person for an assessment year will he be ineligible from making a declaration under the Scheme?
Answer: The person will only be ineligible from declaration for those assessment years for which a notice under section 142(1)/143(2)/148/153A/153C is issued and the proceeding is pending before the Assessing Officer. He is free to declare undisclosed income for other years for which no notice under above referred sections has been issued.
 
Question: As per the Scheme, declaration cannot be made where an undisclosed asset has been acquired during any previous year relevant to an assessment year for which a notice under section 142, 143(2), 148, 153A or 153C of the Income-Tax Act has been issued. If the notice has been issued but not served on the declarant then how will he come to know whether the notice has been issued?
Answer: The declarant will not be eligible for declaration under the Scheme where the undisclosed income relates to the assessment year where a notice under section 142, 143(2), 148, 153A or 153C of the Income-tax Act has been issued and served on the declarant on or before 31 May 2016. The declarant is required to file a declaration regarding receipt of any such notice in Form-1.
 
Question: In a case where the 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, then what shall be the method of computation of undisclosed income represented by such undisclosed asset for the purposes of the Scheme?
Answer: As per sub-rule (2) of rule 3 of the Income Declaration Scheme Rules, 2016, where investment in any asset is partly from an income which has been assessed to tax, the undisclosed income represented in form of such asset will be the fair market value of the asset determined in accordance with sub-rule (1) of rule 3 as reduced by an amount which bears to the value of the asset as on the 1.6.2016, the same proportion as the assessed income bears to the total cost of the asset. This is illustrated by an example as under:
Investment in acquisition of asset in previous year 2013-14 is of Rs500 out of which Rs200 relates to income assessed to tax in AY2012-13 and Rs300 is from undisclosed income pertaining to previous year 2013-14. The fair market value of the asset as on 1June 2016 is Rs1,500.
The undisclosed income represented by this asset under the scheme shall be:
1,500 minus (1,500 X 200/500) = 900
 
Question: Can a declaration be made of undisclosed income which has been assessed to tax and the case is pending before an Appellate Authority?
Answer: As per section 189 of the Finance Act, 2016, the declarant is not entitled to re-open any assessment or reassessment made under the Income-Tax Act. Therefore, he is not entitled to avail the tax compliance in respect of such income. However, he can declare other undisclosed income for the said assessment year, which has not been assessed under the Income-tax Act.
 
Question: Can a person against whom a search/ survey operation has been initiated file declaration under the Scheme?
Answer: 
 
(a) The person is not eligible to make a declaration under the Scheme if a search has been initiated and the time for issuance of notice under section 153A has not expired, even if such notice for the relevant assessment year has not been issued. In this case, however, the person is eligible to file a declaration in respect of an undisclosed income in relation to an assessment year, which is prior to assessment years relevant for the purpose of notice under section 153A.
 
(b) In case of survey operation, the person is barred from making a declaration under the Scheme in respect of an undisclosed income in which the survey was conducted. The person is, however, eligible to make a declaration in respect of an undisclosed income of any other previous year.
 
Question: Where a search/ survey operation was conducted and the assessment has been completed but certain income was neither disclosed nor assessed, then whether such unassessed income can be declared under the Scheme?
Answer: Yes, such undisclosed income can be declared under the Scheme.
 
Question: What are the consequences if no declaration under the Scheme is made in respect of undisclosed income prior to the commencement of the Scheme?
Answer: As per section 197(c) of the Finance Act, 2016, where any income has accrued or arisen or received or any asset has been acquired out of such income prior to the commencement of the Scheme and no declaration is made under the Scheme, then such income shall be deemed to have been accrued, arisen or received or the value of the asset acquired out of such income shall be deemed to have been acquired in the year in which a notice under section 142/143(2)/148/153A/153C is issued by the Assessing Officer and the provisions of the Income-tax Act shall apply accordingly.
 
Question: If a declaration of undisclosed income is made under the Scheme and the same was found ineligible due to the reasons listed in section 196 of the Finance Act, 2016, then will the person be liable for consequences under section 197(c) of the Finance Act, 2016?
Answer: In respect of such undisclosed income which has been duly declared in good faith but not found eligible, then such income shall not be hit by section 197(c) of the Finance Act, 2016. However, such undisclosed income may be assessed under the normal provisions of the Income-tax Act, 1961.
 
Question: If a person declares only a part of his undisclosed income under the Scheme, then will he get immunity under the Scheme in respect of the part income declared?
Answer: It is expected that one should declare all his undisclosed income. However, in such a case the person will get immunity as per the provisions of the Scheme in respect of the undisclosed income declared under the Scheme and no immunity will be available in respect of the undisclosed income, which is not declared.
 
Question: Can a person declare under the Scheme his undisclosed income which has been acquired from money earned through corruption?
Answer: No. As per section 196(b) of the Finance Act, 2016, the Scheme shall not apply, inter-alia, in relation to prosecution of any offence punishable under the Prevention of Corruption Act, 1988. Therefore, declaration of such undisclosed income cannot be made under the Scheme. However, if such a declaration is made and in an event it is found that the income represented money earned through corruption it would amount to misrepresentation of facts and the declaration shall be void under section 193 of the Finance Act, 2016. If a declaration is held as void, the provisions of the Income-tax Act shall apply in respect of such income as they apply in relation to any other undisclosed income.
 
Question: Whether at the time of declaration under the Scheme, will the Principal Commissioner/ Commissioner do any enquiry in respect of the declaration made?
Answer: 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.
 
Question: Will the declarations made under the Scheme be kept confidential?
Answer: The Scheme incorporates the provisions of section 138 of the Income-tax Act relating to disclosure of information in respect of assessees. Therefore, the information in respect of declaration made is confidential as in the case of return of income filed by assessees.
 
Question: Is it necessary to file a valuation report of an undisclosed income represented in the form of investment in asset along with the declaration under the Scheme?
Answer: It is not mandatory to file the valuation report of the undisclosed income represented in the form of investment in asset along with the declaration. However, the declarant should have the valuation report. While e-filing the declaration on the departmental website a facility for uploading the documents will be available.
 
 
(CA Vimal Punmiya is the Proprietor of Vimal Punmiya & Co and has been in this profession for more than 37 years. He has written a number of books on subjects like transfer of flats, stamp duty, registration, and capital gains.)
 

 

User

RBI's Financial Stability Report points to increased stress in system
The Financial Stability Report released by the Reserve Bank of India (RBI), while indicating two positive trends also wans of increased stress in the system, says a research report.
 
In the note, Religare Capital Markets Ltd says, over the past six months there are two positive trends, including improvement in corporate credit health with exposure to levered players reducing to 14% in March 2016 compared with 19% in September 2015. In addition, there is a meaningful decline in stressed advances ratio for the infrastructure sector to 17% from 22%.
 
"On the other hand, the FSR warns of increased stress in the system with a special mention accounts (SMA)-1 exposure rising 35%, sectoral stress tests revealing a severe hit on bank profits and system gross non-performing assets (GNPAs) likely rising to 8.5% by March 2017 even amid a stable macro," the report says.  
 
According the FSR, proportion of levered companies is declined to 14% in March 2016 from 19.4% in September 2015. As per RBI’s analysis of around 1,800–2,600 non-government non-financial (NGNF) listed companies under FSR, the proportion of levered companies declined, and even their share in total debt fell to 21%  from 30% during this period. The report however did not cite any reasons for the sharp improvement in corporate credit health over the last six months.
 
As per the report, stressed levels in infrastructure sector too declined to 17% during the same period. While the GNPA ratio for the industrial sector worsened to 11.9% in March 2016 from 7.3% in September 2015, its stressed advances ratio declined marginally to 19.4% from 19.9% during this period. Within the sector, stress levels increased in sub-sectors such as metals (to 34%), construction (27%) and textiles (21%), but declined in the infrastructure sector to 17% from 22% in September 2015.
 
While there is a sharp decline in advances to SMA-2 accounts, SMA-1 advances jumped 35% during September 2015 to March 2016 period. Advances to large borrowers classified as SMA-2 declined sharply by 40%, and restructured standard advances slipped by 25% between September 2015 and March 2016. Simultaneously, GNPAs for these borrowers spiralled up 66.3%, largely reflecting reclassification during this period. However, advances to large borrowers classified as SMA-1, that shows early signs of asset quality stress, increased sharply by 35.1% in the last six months, Religare pointed out.
 
According to Religare report, the sectoral credit stress tests carried out by RBI indicate a hit on bank profits. The RBI assessed the credit risk arising from exposure to the infrastructure sector by conducting sectoral credit stress tests. "The tests revealed that on converting a portion of existing restructured standard advances in the infrastructure sector into NPAs and exposing other standard advances in each sector to shocks, the hit on profitability of banks would be severe. The tests further revealed that the most significant effect of the single sector shock would come from the power and transport sectors," the research note added.
 
The Financial Stability Report -FSR from RBI also expects system GNPAs to touch 8.5% by March 2017. The RBI’s macro stress tests suggest that under the base case, the GNPA ratio in the system and public sector banks (PSBs) may rise to 8.5% and 10.1%, respectively, by March 2017 from 7.6% and 9.6% in March 2016. "However, under a severe stress scenario, the ratio may jump to 9.3% and 11.0% by March 2017. Private banks may fare better with their GNPA ratios rising to 3.1% and 4.2% by March 2017 under base and severe stress scenarios," Religare concluded.

User

COMMENTS

MG Warrier

5 months ago

The FSR has made the following observation in its ‘Overview’:

“Assessment
India’s financial system remains stable, even though the banking sector is facing significant challenges. As global uncertainties and transiting geopolitical risks impact India, continuation of sound domestic policies and structural reforms remain the key for macroeconomic stability.”

The recent timely initiative by RBI to save the assets of the banking sector from getting totally impaired by assault by corporate borrowers who turned out to be wilful defaulters has started showing results. Banks, in the past did not experience the pain from stressed assets, as they were able to create provisions from the wide margins they enjoyed. With global changes in interest rates regime, such margins will not be available now. But all is not lost. Awareness about the need for professionalism has dawned at the right time. Now what is required is freedom for regulators and banks to manage their affairs professionally.

7th Pay Commission to boost consumption by Rs45,110 crore
The union cabinet cleared the Seventh Central Pay Commission (7CPC) recommendations, which would boost consumption to the economy by Rs45,110 crore or about 0.30% of gross domestic product (GDP) and increase savings by Rs30,710 crore (0.20% of GDP), says India Ratings and Research (Ind-Ra). 
 
Ind-Ra says it believes that after the sharing of central taxes with the state governments, the central government's net tax revenue will increase by Rs14,100 crore or around 0.09% of GDP in FY17.
 
"The revised salaries of central government employees are likely to be paid from 1 July 2016. While the employees will get salary arrears from 1 January 2016, allowances will be paid only from 1 July 2016. Thus the gross impact of 7CPC is likely to be Rs94,775 crore or 0.63% of GDP," it added. 
 
After sharing the increase in income tax and excise duty with states, the central government will receive income tax on this pay out and collect excise duty on consumption. Thus, Ind-Ra says the net impact on the central government finances is estimated to be Rs80,641 crore or about 0.54% of GDP.
 
Ind-Ra says it believes the impact of pay revision of state government employees will be felt only in FY18. "The Seventh Central Pay Commission award is expected to be less severe on state finances than expected earlier due to a lower arrear pay out. In all likelihood, the impact of a salary revision of the Seventh Central Pay Commission on state government finances will be Rs1.58 lakh crore in FY18, which is about 0.95% of FY18 GDP," the ratings agency says.
 
Salaries and pension of state and central government employees are not alike; however, the common thread between the revisions is constitution, award and implementation. Now that the central government has accepted the report of the Central Pay Commission, most state governments will also follow suit after a gap of six months to a year.
 
A major difference between the previous pay commissions and the seventh pay commission is that there is hardly any lag between the day from when the award is to be implemented and the date on which the award was announced. As a result, the size of the arrears to be paid will be negligible compared with the payouts of the fifth and sixth pay commissions. The fiscal impact of the arrears of the sixth pay commission was so onerous that it was spread over two fiscals, FY10 and FY11.
 
Although 7CPC is applicable to central government employees, the salaries and pensions of state government employees, urban local bodies, central and state public sector undertakings, autonomous bodies and universities will also be revised in FY17 and FY18. 
 
Ind-Ra's estimate shows that the demand boost to the economy as a result of the revision in the salaries and pensions of the above mentioned employees will be at least four times the 7CPC's award.
 
Ind-Ra says it does not see any immediate threat to inflation due to the award of 7CPC. "Though consumer price inflation may inch up somewhat due to higher prices of services, impact on wholesale price index is likely to be muted due to the counter balance provided by the deflation in commodity prices and the availability of excess capacity in several manufacturing sectors. A rise in demand is likely to not only increase capacity utilisation but may also help revive the investment cycle earlier than expected," it added.
 
The pay panel had in November 2016 recommended 14.27% hike in basic pay at junior levels, the recommendations amount to 23.55% overall hike in salaries, allowances and pension. The date of implementation for the recommendations is 1 January 2016. However, it is likely that allowances will be paid only from 1 July 2016.
 

User

We are listening!

Solve the equation and enter in the Captcha field.
  Loading...
Close

To continue


Please
Sign Up or Sign In
with

Email
Close

To continue


Please
Sign Up or Sign In
with

Email

BUY NOW

The Scam
24 Year Of The Scam: The Perennial Bestseller, reads like a Thriller!
Moneylife Magazine
Fiercely independent and pro-consumer information on personal finance
Stockletters in 3 Flavours
Outstanding research that beats mutual funds year after year
MAS: Complete Online Financial Advisory
(Includes Moneylife Magazine and Lion Stockletter)