Why the Income Declaration Scheme 2016 is different from previous amnesty schemes?

Government is taking several efforts to track black money and to bring them into the official economy. In 2015, a scheme to bring back undisclosed income and assets stored abroad by residents was launched. The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act 2015 revealed only limited amount of black money abroad compared to gigantic estimates about black money abroad.

Second one is the Income Declaration Scheme of 2016. The scheme targets domestic black money and was launched on 1st June 2016 with the starting of a three-month declaration window. People and entities can reveal black money earned till 2016 and convert them into white money by paying 45% payment including tax plus surcharge and a penalty. Taxes, surcharge and penalty payable under the Scheme can be paid in instalments viz. and the latest installment should be made by end August 2017.

All ‘persons’, such as individuals, HUFs, companies, firms, association of persons (AOP) etc., are eligible to make declaration under the Scheme.

There will be no prosecution whereas limited provisions of the Binami Transaction Prohibition Act 1988 will be applied.

Why the IDS is different from previous schemes?

An amnesty scheme for black money comes as a package enabling black income holders to convert their black income into white money by paying just the tax rate. But it will be a disincentive to the honest tax payers. Hence a punishment in the form of a penalty is imposed on people who reveal black income.

The previous Voluntary Disclosure of Income Scheme (1997) lacked this punishment/penalty. Several criticisms were levelled against it. In 1998, the Attorney General made a promise to the Supreme Court (after the VDIS 1997, which was an amnesty scheme) that it will not introduce an amnesty scheme in future. The court has observed that such a scheme adversely affects the morale of the honest tax payers. So under the IDS 2016, the 7.5% penalty doesn’t make look like an amnesty scheme as it penalizes the dishonest.

Following are the main features of the domestic black money amnesty scheme

  1. The tax rate will be 45%. The tax rate includes 30% tax plus 7.5% surcharge (Krishi Kalayan Surcharge) plus a penalty of 7.5%. The main part is the penalty of 7.5%.
  2. There is a Limited Period Compliance Window of four months from June 2016 to September 2016 to disclose black money.
  3. In the next two months, the tax should be paid.
  4. There is no scrutiny under the income tax Act, Wealth Tax Act
  5. There is no prosecution and no enquiries as well about the black money revealed.
  6. In the case of investment assets, the Fair Market Value as on 1st June 2016 shall deemed to be the undisclosed income under the Scheme.

The 7.5% surcharge from the scheme will be used for financing Krishi Kalayan Yojana and this gives a social purpose colour to the black money scheme.

At the end of the three month window period for declaring undisclosed income and assets, around Rs 65000 crore has been revealed to the tax authorities. This is compared to the Rs 30000 crore black money revealed during VDIS 1997.