With the entire Tax environment being sensitive for the NRI’s in India, the IDS (Income Declaration Scheme) come as a boon in disguise.
The IDS (Income Declaration Scheme), gives an opportunity to the Tax Assessees, to disclose all their unaccounted income or the assets, and come out clean by paying the applicable tax, cess and the penalty totalling 45% of the undisclosed income.
This option is open only for four months, from 1st of June to 30th of September 2016.
This will help you to regularise your wealth and income and keep you safe from any future prying eyes of the Tax people.
IDS are also for those who unknowingly may not have paid their tax on certain income or assets bought from their income. For instance:
ü One could have missed paying capital gains tax on the money received from the sale of an inherited property.
ü If you have not maintained your NRI status then your Global Income is Taxable in India
ü If you have moved overseas, then that particular year may have DTAA implications, where you may have been required to report your overseas income in India
ü You have sold a property and you have received a cash component.
ü If you have returned to India (Returned NRI) and you have brought in money and you have earned some Income in a year where you were a resident in India
ü Sale of Investments and Jewellery which has not been declared.
ü Properties or assets purchased in the name of any Relatives.
ü You have purchased a property, but as you have paid Cash and it is not included in the real value of the Property.
Under IDS, an Assessee can declare his undisclosed income or assets seized through such income.
This scheme is about free disclosure of untaxed income and acceptance of income tax liability by the Assessee. This is a very good opportunity for those who have knowingly or unknowingly have not disclosed or have under-disclosed their income.
The biggest advantage of the scheme is that once an assessee declares income under this, she will get protection from penalty or prosecution proceedings under the Income-tax Act, 1961, and the Wealth-tax Act, 1957, related to such income.
What to do?
Where the undisclosed income is easily available, one can simply put the amount. But if assets were acquired using this income, one has to disclose their fair market value (FMV) as on 1st of June 2016. Tax has to be paid established on the declared value of the assets. The tax department has issued guidelines to assess FMV. For instance, for assets such as bullion, jewellery or precious stones, between the cost of purchase and the price it will fetch, if sold in the open market on the valuation date (i.e., 1st of June 2016); the higher amount has to be considered for the tax purpose. The same applies to other assets such as the immovable property (house or commercial space), or archaeological collections, drawings, or any work of art.
In case of the financial assets such as the shares and securities, the process is slightly different. The asset’s FMV will be higher of these two costs—cost of acquisition or the average of the lowest and the highest price quoted on any established securities market on the valuation date.
Get a certified copy from a registered valuer (as per the section 34AB of the Wealth-tax Act).
The value hence ascertained has to be mentioned in the tax declaration form and the Assessee will have to keep the certified report for each asset for the future reference.
You can file the declaration online or offline.
When a declaration is received, the designated officer shall issue the acknowledgement within 15 days from the end of the month in which such declaration has been made.
If the acknowledgment states that your declaration is accepted, the next step is to clear up the due tax.
While the income declaration window will remain open till 30th of September, 2016, tax on such income can be paid in instalments over the year.
Who are not covered?
Not everyone can take the advantage of the scheme.
A taxpayer who is involved in litigation or proceeding under the Income Tax Act or any other Act (specified under the scheme) cannot rectify for the disclosure under this scheme.
Failure to pay the entire amount of tax (including the Krishi Kalyan Cess) and the penalty on or before the due dates.
Any misrepresentation or suppression of facts or information will render the declaration void.
Once a declaration is rejected, it shall be deemed that no declaration was made.
In such a case, the tax department can initiate necessary action as prescribed under the Income-Tax Act.
If you want to make use of the IDS, ensure that the undisclosed income is valued properly and the taxes are calculated correctly, because once paid, these taxes and penalties won’t be refunded.
A Reasonable Option
The Income Declaration Scheme and Dispute Resolution Scheme, 2016, is not an immunity scheme to reward dishonest taxpayers.
To find out why they are not intended to reward dishonest taxpayers, we have to go into the details of previous immunity schemes.
Between 1951 and 1997, 10 immunity schemes were announced to declare the unaccounted money, most of which were misused. Dishonest people who did not pay taxes, declared their undisclosed incomes and assets, and got away with paying lesser than normal taxes, with all immunities. Only two of these schemes were seen as successful: the income declared under amnesty circular 1985/86 was Rs 10,778 crore, and under VDIS, 1997, Rs 33,000 crore. But in reality, these successes were at the cost of revenue. The real value of the assets declared was double the value considered for the tax purposes. Taxes were paid at less than 50% of the normal rate, with zero interest and penalties.
However, this scheme extends an opportunity to come clean by paying more than the normal tax. They have not been drafted to bring the loss of revenue or to give hefty discounts on payable taxes and seems to be a reasonable solution and option provided to the Assessees to come clean.
The CBDT has also cautioned lurking stash holders saying it has prepared a database of about "nine lakh pieces" of instances of high-value transactions and it will soon "confront" them with this information as part of its exercise to ensure timely declarations under the ongoing one-time black money window.
CBDT has said over one lakh cases under this database relate to the transactions of over Rs 1 crore.
The CBDT boss, to whom the Income Tax department reports is called the IDS a one-time opportunity given to the black money holders to come clean.
What are the Benefits?
In case you have had any Tax default, where you have failed to pay Taxes then the IDS is the best option to come clean and it helps financially too.
For example:
If you have had an undisclosed income of say Rs 100 then under normal Tax there will be say Rs 30 to be paid in Tax. If there is a delay in the payment of advance tax then there is an Interest penalty applicable depending on the delay, which can go up by as much as 100% in a couple of years. Hence, the total Tax to be paid will be Rs 30 + Rs 30 = Rs 60.
Now due to the delay in the Taxes or intent to evade Taxes the ITO has the authority to impose a Fine on you to the tune of 100% to 300%. Hence, the Fine will be Rs 30 or Rs 90.
So on an Income of Rs 100, your Tax liability can go up to more than Rs 100.
However, in case of IDS, the maximum you are required to pay is Rs 45 as Tax and Penalty without any future issues.
There are many Residents and NRI’s who have come forward to take this opportunity to come clean and if it suits you, then this is a thinkable option.
God Bless.
Mr Rohit is a veteran in International Tax and NRI Taxation. He has an experience spanning across decades in the field of International Tax, Finance, Banking and Trade and has worked with MNC’s and other Corporates across sectors. He can be contacts at rohit@TaxAssist.in.
For general queries and to sign up with us, please mail us at nri@TaxAssist.in or call us at +91 98307 56567.
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