All you want to know about Income Declaration Scheme 2016

LOKESHWARRI SK | Updated on January 20, 2018 Published on June 20, 2016


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The Centre is clearly finding it difficult to juggle its tight fiscal balance with the myriad demands for funds to pep up the economy. This state of affairs is, to a large extent, due to the ineffectiveness of tax authorities in making citizens part with their money by way of taxes.

India's tax to GDP ratio is one of the worst globally. Undeclared income has been ferreted away over the years and currently estimated to run into trillions of rupees. In yet another bid to unlock this stash, the Income Declaration Scheme (IDS) 2016, was announced in the Union Budget.

What is it?

The Centre has opened a window for those who have not declared their income correctly in earlier years, to come clean this year. While the IDS last year sought to tackle black money stashed overseas, this year’s scheme is limited to domestic income that has escaped tax. The window will remain open for four months from June 1. The declared income will be taxed at the rate of 30 per cent plus a Krishi Kalyan cess of 25 per cent on this tax, and a penalty at the rate of 25 per cent of the tax payable; thus bringing the total tax outgo to 45 per cent of the income declared.

The undisclosed sum can be held either in the form of assets or in any other form. If the taxpayer is holding undisclosed income in the form of an asset, the market value of the asset as on June 1 shall be used to compute the sum of undisclosed income. The Centre has also promised that those declaring undisclosed income will not be subject to further enquiry or scrutiny. On the other hand, if someone fails to use this opportunity, the income, if unearthed by the tax-men in subsequent years, will be subject to tax for the previous years and there could be penal actions as well.

Why is it important?

The Centre is planning to collect a sizeable sum through this move; some estimates peg the likely collection above ₹50,000 crore. Since this sum has not been included in the Budget, it will go a long way towards helping garner funds for infrastructure and other essential spends.

However, some believe that the rate of tax is too high to elicit good response. Others think the clause that the assets declared should be taxed based on their current market value will hold back declarations. This mark-to-market provision may call for holders of property and other valuable assets to incur a sizeable tax outgo, which they may not even hold in liquid cash.

Why should I care?

By using technology and requiring PAN disclosures for a range of transactions, the taxman is tightening the net on the generation of black money at source. So if you have undisclosed income, it is highly likely that the tax-men will sniff it out, sooner or later; in which case you might have to face penal provisions or cough up an obscene sum to bail yourself out. This is therefore a good time to make a clean breast of it.

If you are a diligent taxpayer though, you can rejoice in the fact that if the Centre collects enough money through this drive, the tax base may widen. This will mean more social spends or even lower tax rates in future. You also need not feel short-changed as an honest tax-paying citizen. Unlike in the past, when the tax rate on such ‘voluntary disclosure’ schemes was lower, the Centre has built in a high penalty for evading taxes this time around.

The bottomline

After last year’s fiasco on foreign assets, hopes aren’t too high this time. Let’s hope the Modi government be second time lucky.

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Published on June 20, 2016
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