What is Income Declaration?
Income Declaration or as it was originally called Voluntary Disclosure of Income Scheme (VDIS) was an unusual but highly successful economic policy of the Indian Government to mop up black money in the economy. The scheme was targeted at tax defaulters who did not disclose their true income or all their income sources to avoid income tax. The scheme covered a record number of individuals who disclosed their income. The Finance Ministry has been able to recover a considerable amount of money from the scheme over the years.
The first VDIS was more successful than the expectations of the government. Only the worth of sequestered assets was Rs. 260 billion. The scheme was helped by the fact that the Finance Ministry had assured that no financial offense laws would be applicable to tax evading individuals or companies involved. The success of the scheme allowed future governments to introduce more such schemes in an effort to curb black money.
Income Declaration Scheme (IDS):
The latest income declaration scheme was launched by the government as a part of the Union Budget 2016. The purpose of this scheme was to uncover the black money and bring it back to the financial system of the country. Similar to VDIS, the scheme offered an opportunity to wealth tax defaulters and income tax defaulters to disclose their income and come under the umbrella of provisions of the Income Tax Act. The scheme included declaration of the assets and paying taxes along with a penalty of 45% to avoid any litigation.
Income declaration scheme promised individuals and companies that they would not be subject to any scrutiny and immunity from prosecution under the IT Act, Wealth Tax Act 1956. Some of the notable declarations under this scheme include a single disclosure of Rs. 138.6 billion by Mahesh Shah from Ahmadabad, Gujarat.
The Government of India also associated its Pradhan Mantri Garib Kalyan Yojna (PMGKY) with the Income Declaration Scheme. Under this, PMGKY utilises the disclosed funds to benefit the deprived class of the society. Declarations made under this scheme are confidential and attract 50% fine on the assets. The government also invests additional 25% of the disclosed income in the scheme. The amount can be taken back as a refund after 4 years but without any interest. Not disclosing the funds under PMGKY attracts a penalty of 77.25%. The income will attract an additional 10% penalty if it is not shown in the income tax returns.
Tax Collection and Efforts of the Government:
The Government of India tried its best to cover as many people under the ambit of income tax. The Government organised ad campaigns and nukkad nataks and urged people to come clean on income tax dues. The IT department also played a vital role in this process. The department with the support of Ministry of Finance organised more than 5,500 public meetings with stakeholders and the general public. The Finance Minister himself conducted many such public meetings.
These efforts proved their worth and the scheme saw a tremendous response from the general public, especially in the month of August and September 2016. As a consequence, 64,275 declarations were filed until the midnight of 30th September with a total tax collection of Rs. 65,250 crore of income in the form of undeclared assets and incomes.
Apart from undisclosed assets and incomes, the IDS has been quite successful in encouraging people to file their income tax. The rising number of ITR applications is a substantial proof of that.
Declarations under Income Declaration Scheme:
The income declaration scheme considers a number of factors while including people or companies to withdraw litigations. Some of the factors include:
- Any type of undisclosed income in the form of investments, assets or any other income are covered under the jurisdiction of this scheme. This includes the income pertaining to financial year 2015-16 or previous years.
- Foreign assets or income are not eligible for this scheme.
- Any person or company who failed to disclose their income in the previous years’ ITR can utilise this scheme for further disclosures. However, people who have already received notices under sections 142(1), 143(2), 148, 153(A), or 153(C) may not be eligible for disclosure under this scheme. Moreover, individuals who are under a government survey or investigation along with the people involved in cases under Black Money Act 2015, persons notified under Special Court Act 1992, and people who have cases under Indian Penal Code (IPC), Narcotic Drugs and Psychotropic Substances, Act 1985, Unlawful Activities (Prevention) Act 1967, and Prevention of Corruption Act 1988, are not eligible for making disclosure under this scheme.
- In case of undisclosed assets, the fair market value of the asset will be calculated on the basis of market value as on 1st June 2016.
- Declarations cannot claim any deductions or allowances for their disclosure.
- The income tax on disclosed assets and income will be levied at the rate of 30%. Additional penalties and cess such as Krishi Kalyan Cess and penalty at the rate of 7.5% each will also be levied on the total amount of disclosure. This makes the total penalty of 45% on the declaration.
- A clear explanation of who can make the declarations under IDS under specific circumstances, is given here.
| Category of Declarant | Signing Authority |
| Individual | · If the declarant is present in India – Self
· If the declarant is absent from India – Self or Authorised Representative · If the declarant is mentally incapacitated – By Guardian or Another Competent Person on His/her Behalf |
| Hindu Undivided Family (HUF) | · By karta of HUF
· If karta is absent from India or mentally incapacitated – By Any Other Adult Member of HUF |
| Firm | · By managing partner of the firm
· If the managing partner is absent from India or mentally incapacitated – By Other Managing Partner of the Firm |
| Company | · By Managing Director (MD) of the company
· If the MD cannot authorise the declaration by any means, the other MD can sign |
- The declarations can be made online or with Jurisdictional Principal Commissioners or any Income Tax Commissioner in the country.
- As per the IDS, no scrutiny or inquiry will be conducted on individuals or companies who disclose their income and assets under the Income Tax Act or Wealth Tax Act. Assets mentioned in the disclosure are exempted from wealth tax. In addition, the amount of disclosure will not be included in the total income of the declarant in the assessment year as per the IT Act.
- Another similar scheme was launched on 1st June 2016 by the name of Direct Tax Dispute Resolution Scheme. This scheme offers a way of filing tax dues to individuals who have pending application in front of Income Tax Commissioner in the country. The scheme is managed by Central Board of Direct Taxes (CBDT).
Standards for Income Computation and Disclosure:
Income Computation and Disclosure Standards (ICDS) were issued by the Government of India under Section 145(2) of the Income Tax Act 1961. A total of 12 drafts of ICDS were published by Ministry of Finance of which 10 were notified by the Government on 31st March 2015. ICDS were originally drafted by Accounting Standards Committee formed by CBDT. The committee originally drafted 14 standards among which 10 final standards were notified. The notified ICDS were applicable from the financial year 2016-17.
The purpose of ICDS was to reduce the irregularities and bring uniformity in the accounting policies responsible for income tax computation in accordance with tax provisions. ICDS were drafted on the basis of Generally Accepted Accounting Principles (GAAP) with support from Institute of Chartered Accountants of India (ICAI).