Loopholes of Income Declaration Scheme 2016

By | July 3, 2016

Income Declaration Scheme 2016

(Chapter IX of Finance Act 2016 )

Income Declaration Scheme  2016

Following are the Loopholes of Income Declaration Scheme 2016

Govt has gained time in respect of undisclosed income for which time to issue notice has expired : If the undisclosed income is not declared under Income Declaration Scheme 2016 and the time to issue notice has also expired then  section 197(c) of the Finance Act, 2016, introduces a deeming fiction. It states that where any undisclosed income [which has accrued or arisen or received prior to commencement of this scheme] shall be deemed to have accrued or arisen or received in the year in which a notice under section 142/143(2)/148/153A/153C is issued by the Assessing Officer, and the provisions of the IT Act shall apply accordingly.

This section further states that the the value of the asset acquired out of such income shall be deemed to have been acquired or made, in the year in which a notice under section 142, sub-section (2) of section 143 or section 148 or section 153A or section 153C of the Income-tax Act is issued by the Assessing Officer, and the provisions of the Income-tax Act shall apply accordingly.

Non Resident can also make declaration: Income Declaration Scheme 2016 does not define Person . It only defined “declarant” which  means a person making the declaration under sub-section (1) of
section 183; Since the word person has not been defined in the scheme reference should be made to the Income tax Act as per section 182 (c). As per Section 2(31) person  will cover Individual, HUF, Company, Firm, etc., irrespective of its residential status. Therefore, even a non-resident person is eligible under this scheme.

This is against the Finance Minister Budget Speech while presenting Finance Bill 2016 ”  I propose a limited period Compliance Window for domestic taxpayers to declare undisclosed income ….”

Set off of Loss allowed  :As per Section 183(4) of Income Declaration Scheme 2016 , No deduction in respect of any expenditure or allowance shall be allowed against the income in respect of which declaration under this section is made” 

There is distinction in words, Loss, Expenditure and Allowance.  Thus it has not been mentioned that the Set off of Loss will not be allowed .

Section 2(42A) for Period of Holding not amended :-Section 49 of the Income Tax Act has been amended by the Finance Act, 2016 to provide that cost of acquisition of assets declared under Income Declaration Scheme 2016 shall be the Fair Market Value, which was taken into account while computing tax under the scheme

Q.No 1 of Circular no. 17 of 2016, dated 20th May 2016  of CBDT say that the period of holding shall start from the date of determination of fair market value for the purposes of Income Declaration Scheme 2016. However no such amendment has been carried out to section 2(42A) of the Income Tax Act.

Benami Property will not be confiscated : – As per Section 190 The provisions of the Benami Transactions (Prohibition) Act, 1988 shall not apply in respect of the declaration of undisclosed income made in the form of investment in any asset, if the asset existing in the name of a benamidar is transferred to the declarant, being the person who provides the consideration for such asset, or his legal representative, within the period notified by the Central Government.

 Sharing of Information with other Agencies : As per section 138(1)(a)(i) of Income tax act , income tax department can share the information with other agencies. No immunity under Income Declaration Scheme 2016 has been granted to the Assessee that his information will not be shared with other agencies like Sales Tax deptt, excise department etc.

Inquiry on other person based on declaration of declarant  : Since Income Declaration Scheme 2016 provides benefit, concession or immunity only to the person making the declaration .

Thus in case employee declare undisclosed salary income, action can be taken against the employer.

Result of Failure to Pay taxes and Penalty :In cases where any declaration has been made but no tax and penalty referred in  Income Declaration Scheme 2016  has been paid within the time specified, the undisclosed income shall be chargeable to tax under the Income-tax Act in the previous year in which such declaration is made.

Related Post

  2. FAQ’s on Income Declaration Scheme 2016 ( Ist FAQ by CBDT)
  3. Income Declaration Scheme 2016 Clarification by CBDT via FAQ (2nd FAQ by CBDT)
  4. Income Declaration Scheme 2016  ( 3rd FAQ by CBDT )
  5. Form for Declaration under Income Declaration Scheme 2016
  6. Jurisdiction for making declaration under Income Declaration Scheme 2016
  7. Income Declaration Scheme Rules 2016
  8. Income Declaration Scheme 2016 Explanatory notes
  9. Income Declaration 2016 , Declaration & Tax Payment Date Notified
  10. Income Declaration Scheme 2016 to open from 1st June 2016
  11. CBDT asks issues from public on Income Declaration Scheme 2016 & Direct Tax Dispute Resolution Scheme 2016
  13. Govt proposed scheme to declare undisclosed income by paying 45% tax

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