Income Declaration Scheme in India: A Path to Legalize Undisclosed Income

Taxation can be considered as an important component of the economy which provides the government with the necessary funds to handle various public services and infrastructure projects in the country. In India, the Income Tax Department plays an important role in collecting revenue by way of taxation from individuals and entities based on their income. The Income Declaration Scheme (IDS) is one of the most important initiatives of the Income Tax Department which aims to allow taxpayers to declare their undisclosed income and assets. This scheme also provides the taxpayer an opportunity to lower their tax obligations. In this article, we will discuss about Income Declaration Scheme.

Understanding the Income Declaration Scheme (IDS)

The Income Declaration Scheme, also known as the Income Declaration Scheme 2016 (IDS 2016), was initiated by the Indian Government as an effort to curb black money and to promote tax compliance. This scheme provides for a limited-time window for individuals and companies to disclose their undisclosed income and assets which is present both in India and abroad and to pay the applicable taxes and penalties. The scheme has the main objective of widening the tax base and bringing unaccounted or undisclosed income into the mainstream economy.

Key Features of the Income Declaration Scheme

The following are the key features of the Income Declaration Scheme:

• Time-bound Opportunity: IDS 2016 was initiated with a specific timeframe so that during that taxpayers could avail themselves of the benefits of the scheme. The window has provided taxpayers with the opportunity to declare their undisclosed income without any fear of prosecution.
• Tax and Penalty Rates: Taxpayers who declare their undisclosed income under the scheme were under obligation to pay certain
• taxes and penalties. This scheme has offered a concessional tax rate on the undisclosed income which is usually higher than the prevailing tax rate accompanied by an additional penalty.
• Anonymity: The Income Tax Department ensured the taxpayers that the information provided by them under this scheme would be kept confidential which not only safeguards their identity but also prevent any adverse consequences.
• Immunity from Prosecution: One of the key benefits of this scheme was immunity from prosecution of the taxpayer from the undisclosed income. This scheme provided a significant incentive for individuals or taxpayers to disclose their previously hidden assets.
• Reinvestment of Declared Income: As per this scheme the Taxpayers had an option to invest their declared income in specified assets within a stipulated period which enables them to channel or streamline their previously undisclosed funds to a legitimate investment.

Impact and Significance of Income Declaration Scheme

The Income Declaration Scheme had a significant impact on the Indian economy and tax structure of the country:

• Boost to Revenue: IDS 2016 offers a significant boost to government revenue by way of the collection of taxes and penalties on the disclosed income. This revenue contributed to funding various developmental projects in the economy.
• Black Money Disclosure: The scheme has achieved significant success by encouraging individuals to disclose their undisclosed income and assets which ultimately reduce the amount of black money present in the economy.
• Promotion of Tax Compliance: The scheme assists in promoting a culture of tax compliance by furnishing individuals the opportunity to correct their past non-compliance attitude without undergoing serious penalties or prosecution.
• Wealth into Mainstream Economy: By way allowing individuals to reinvest their declared income into specified assets, this scheme promotes the integration of previously undisclosed income into the economy.

Eligible Persons under the Income Declaration Scheme

Citizens who have not reported their income in whole or in part and have not paid their taxes in full previously are eligible to reveal their undeclared income/assets under this scheme along with the associated taxes, fees, and fines.

In simpler words, The Income Declaration Scheme, 2016 (IDS) applies to all citizens and it allows all citizens, including individuals, HUFs, companies, firms, and associations of persons, to declare their income and assets without any hesitation.

Income Declaration Scheme: Government Tax Collection and Efforts

The Indian government has made every effort possible to bring as many individuals inside the slab of income tax as possible. The government also planned ad campaigns and nukkad nataks to aware citizens aware of their income tax and adhere to their tax obligations. With the help of the Ministry of Finance, the Income Tax Department has successfully held over 5,500 public sessions with stakeholders and the general public and most importantly many of these public sessions were taken care of by the Finance Minister personally.

The results of these efforts were commendable as the plan received a phenomenal reaction from the general public, especially in August and September 2016. As a result, 64,275 declarations were completed by midnight on September 30^th which resulted in a total tax collection of Rs. 65,250 crore in the form of undeclared assets and incomes.

Aside from these unreported assets and income, the IDS is very effective in encouraging people to file their income taxes.

Why You Should Immediately Report Your Undisclosed Income?

First of all, it is unlawful to not disclose assets. Black money is a form of any revenue or money that you hide from the government.

The government’s initiative of income declaration scheme is one of its fantastic attempts to lower down the quantity of black money in the India Economy. There is enough money hidden in the underground market in the form of black money, which directly or indirectly hurts trade and commerce. The primary objective of this scheme is to assist businesses in balancing their books of accounts and to transform their black money into white money so that they may reinvest it in their company for the better growth of their company. Additionally, clean records also assist in increasing international trade.

Although 45% is a significant amount; however you should keep in mind that paying 45% is preferable to going to jail. Yes, you have run the risk of punishment in the form of imprisonment if you fail to pay your taxes. The Central Board of Direct Taxes (CBDT) has made it clear that anyone who fails to pay taxes on unreported income will face harsh punishment. The officials from the Income Tax Department can initiate a raid on your house or workplace and can conceal all of your cash.

On the other hand, if you reveal any unreported income under the IDS then you are protected from liabilities or fines under the Income Tax Act, 1961 and the Wealth Tax Act, 1957. Additionally, the government will keep any such information regarding unreported income secret.

Therefore, it is advisable to Declare Undisclosed Income Right Now! To avoid any legal consequences.

Declarations as per Income Declaration Scheme in India

The Income Declaration Scheme takes into account a variety of criteria. Some of the factors are as follows:

• This takes into account every kind of undeclared revenue, whether it is in the form of investments, assets, or other income.
• This scheme does not apply to foreign assets or income.
• Individuals or companies that failed to acknowledge their income in the previous year’s Income Tax Return can take the help of this scheme to make further disclosures. Individuals who have received notices previously by sections 142(1), 143(2), 148, 153(A), or 153(C) are not eligible for disclosure under this system.

Individuals who fulfil the below criteria are not eligible to disclose this scheme.

• Are subject to a government survey or investigation,
• Involved in cases under the Black Money Act 2015,
• Received notice under the Special Court Act 1992, and
• Cases registered against them under the Indian Penal Code (IPC), Narcotic Drugs and Psychotropic Substances Act 1985, Unlawful Activities (Prevention) Act 1967, and the Prevention of Corruption Act 1988.
• In the case of enclosed assets, the fair market value will be ascertained based on the market value as of June 1st, 2016.
• A declaration does not qualify for any deductions or credits for disclosure.
• The percentage of income tax on the concerned or stated assets and income will be 30%. Additional fines and cess, for example, the Krishi Kalyan Cess and penalty, will be imposed on the entire amount of disclosure. Therefore, this will result in a 45% penalty on the declaration.
• The declarations can be made online mode or with any of the country’s Income Tax Commissioners or Jurisdictional Principal Commissioners.
• Individuals or Companies who have acknowledged their income and their assets under the purview of the Income Tax Act or Wealth Tax Act will not be scrutinized or investigated, as per the IDS. Wealth tax does not apply to assets stated in the disclosure. Furthermore, as per the Income Tax Act, the amount of disclosure will not be counted in the declarant’s total income for the prevailing assessment year.
• The Direct Tax Dispute Resolution programme which is a form of a comparable programme was implemented from 1^st June 2016. This system furnishes a method for people who have pending applications with the Income Tax Commissioner in the country to file their tax returns.

Income Declaration Scheme: Forms Applicable

The following are the forms applicable deal with the Income Declaration Scheme:

• Form 1: Form 1 is a type of declaration form that taxpayers must complete and deliver before the due date, which is September 30, 2016.
• Form 2: It contains the Declaration acknowledgement which should be provided within 15 days of the end of the month in which the declaration is filled.
• Form 3: This form contains an imitation of payment of tax, surcharge. Also, the penalty must be provided by the taxpayer before the end of the deadline, which is November 30, 2016.
• Form 4: Form 4 is the certificate of declaration. This Form 4 must be supplied by PCIT/CIT within 15 days after payment notification.

Income Declaration Scheme: Immunity of Income Declarant

The following are the immunities that one gets:

• The Income Tax/Wealth Tax Act is not subject to scrutiny about such disclosures.
• There is an absence of prosecution regarding the Income Tax/Wealth Tax Act.
• There exists an exemption from the Benami Transactions (Prohibition) Act, of 1988.

Income Declaration Scheme: Standards for Income Computation and Disclosure

According to Section 145(2) of the Income Tax Act, 1961, the Indian Government published an Income Computation and Disclosure Standards (ICDS). Also, the Ministry of Finance issued a total of 12 drafts of the ICDS of which 10 were informed by the Government on March 31, 2015. The CBDT created an Accounting Standards Committee initially which produced the ICDS. The group initially lays down 14 criteria out of which 10 were recognized as final standards. The ICDS that were recognized came into effect for the 2016–17 fiscal year.

The main goal of ICDS was to remove the inconsistencies and also to introduce uniformity in the accounting principles. Also, it is used to calculate income taxes in compliance with tax laws. ICDS was initiated with the assistance of the Institute of Chartered Accountants of India (ICAI) using Generally Accepted Accounting Principles (GAAP).

Way Forward

The Income Declaration Scheme in India serves as one of the crucial instruments in tackling the challenges moved forward by undisclosed income and black money. This scheme is helpful as it provides a taxpayer with a unique opportunity to declare their previously undisclosed income and assets. Also, this scheme aims to strike a balance between promoting compliance and holding individuals liable for their past actions. The income Declaration Scheme by way of increased transparency, improved revenue generation, and the formalization of the economy contributes to a healthier more efficient and robust economic ecosystem.

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