Black Money Declarants Cannot Pay Tax From Undeclared Income

New Delhi: The government on Thursday clarified that black money declarants using the one-time compliance window cannot pay tax and penalty from undisclosed income to bring down their liability and such acts will not get any immunity.

The Income Tax Department today came out with a fourth set of clarifications on the Income Declaration Scheme (IDS) on queries seeking to know if payment under the Scheme can be made out of the undisclosed income without including the same in the income declared, which would bring down the effective rate of tax, surcharge and penalty payable to around 31 per cent from 45 per cent.

The clarification in the form of frequently asked questions (FAQs) stated that there is no intent to "modify or alter the rate of tax, surcharge and penalty payable under the Scheme which have been clearly specified in the Scheme itself".

It said further "Sections 184 & 185 of the Finance Act, 2016 unambiguously provide for payment of tax, surcharge and penalty at the rate of 45 per cent of undisclosed income".

It offered an illustration: A person declares Rs 100 lakh as the undisclosed income... as on June 1, 2016, but pays tax, surcharge and penalty of Rs 45 lakh (30 lakh + 7.5 lakh + 7.5 lakh) on the same out of his other undisclosed income.

"In this case, the declarant will not get any immunity under the Scheme in respect of undisclosed income of Rs 45 lakh utilised for payment of tax, surcharge and penalty, but not included in the declaration filed under the Scheme," it added.

To get immunity under the Scheme in respect of the entire undisclosed income of Rs 145 lakh in this case (Rs 100 lakh undisclosed income being declared and Rs 45 lakh being the payment made from the undisclosed income not declared), one has to pay tax, surcharge and penalty amounting to Rs 65.25 lakh, that is 45 per cent of Rs 145 lakh.

A four-month window starting from June 1 has been provided to persons holding undeclared income and assets to come clean by paying a tax of 30 per cent and interest and penalty of another 7.5 per cent each, totaling 45 per cent.

The window ends on September 30.

On the provision dealing in the declared information not to be shared with the I-T Department for probe, the FAQ said the government on July 6 through a notification directed that "no public servant shall produce before any person or authority any such document or record or any information or computerised data or part thereof as comes into his possession during the discharge of official duties in respect of a valid declaration made under the Scheme".

Also, immunity to directors or partners, as the case may be, shall be available in respect of the undisclosed income declared under the Scheme by the company or partnership firm.

On the issue of the declarants being selected for scrutiny under the CASS after IDS declarations in respect of cash and investment resulting in increase in capital in the balancesheet in an extraordinary manner, it said such cases "shall not be selected for scrutiny under the CASS only on the ground that there is increase in capital in the balancesheet as a result of the declaration made under the Scheme".

In the FAQs, the I-T Department said it is expected that the declarations made under the Scheme are filed correctly but a revision will be allowed before September 30 subject to certain conditions.

"A revised declaration can be filed on or before the date of closure of the Scheme provided the undisclosed income in the revised declaration is not less than the undisclosed income declared in the declaration already filed," it said.

In a case where the declarant gets the benami asset transferred in his name without payment of any monetary consideration to the benamidar, no capital gains will be chargeable.

"In this case, the consideration for acquisition of benami property has already been paid by the beneficial owner and the fair market value of the property has been declared by the beneficial owner under the Scheme," the FAQs said.

"Since the transfer of property from the benamidar to the beneficial owner is only to regularise and there will be no involvement of monetary consideration for transfer of immovable property by the benamidar in the name of the declarant, the question of capital gains in the hands of benamidar and deduction of tax at source shall not arise."

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