Tax Insights
from India Tax & Regulatory Services
www.pwc.in
Income Declaration Scheme, 2016 - CBDT amends the Rules and issues fifth set of FAQs
August 21, 2016
In brief
The Income Declaration Scheme, 2016 (the Scheme), which provides a one-time opportunity to taxpayers to come clean by declaring their undisclosed income or assets in India, is already open. The Central Board of Direct Taxes (CBDT) has already notified rules under the scheme and has also issued four sets of FAQs to address queries raised by general public. Please refer to our earlier news alerts using the links below.
PwC News Alert - 25 May 2016 - Government notifies valuation rules and issues FAQs on the Income Declaration Scheme, 2016
PwC News Alert - 29 June 2016 - Income Declaration Scheme 2016: CBDT issues second set of FAQs to provide more clarification
PwC News Alert - 1 July 2016 - Income Declaration Scheme 2016: Third set of FAQs released by CBDT resolving further queries received from general public
PwC News Alert - 15 July 2016 - Income Declaration Scheme 2016: CBDT revises the time schedule for making payment and issues further clarifications
Recently, the CBDT has amended1 the rules notified under the scheme, providing for the process to disclose the value of the immovable property in case the acquisition is evidenced by a deed, and also cases where property is acquired before 1 April, 1981. In addition, the CBDT has also issued a fifth set of FAQs2 to address further queries raised in regard to the Scheme.
In detail
Under the amended1 rules, an option has been given to the declarants to disclose the value of the property at the stamp value where the immovable property acquired is evidenced by a deed registered with any authority of a state
government. The value shall be increased by the same
1 Notification No- 74/2016 , F No.
142/8/2016-TPL dated 17 August, 2016
proportion that the cost inflation index (CII) for the year 2016-17 bears to the CII for the year in which property was registered.
Furthermore, in case the property has been acquired before 1 April 1981, the fair market value (FMV) as on 1 April, 1981 will be
considered as the stamp value, after taking into
2 Circular No- 29/ 2016 dated 18 August, 2016
consideration the indexation benefit.
Consequent changes have also been made in Form-1 for disclosure.
Given below is a summary of the FAQs2 released by the CBDT, addressing queries raised.
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No. FAQs Answers/ Clarifications
1 There might be cases where the undisclosed income is reflected in creditors or other liability, which may be fictitious. In such cases, can the taxpayer disclose such fictitious liability, as it may not be possible to link it to any specific asset or investment?
Such fictitious liabilities can be disclosed under the Scheme as such without linking the same with the investment in any specific asset.
However, in cases where there is a direct link between the fictitious liability and the asset acquired, then the amount to be declared shall be the FMV of the acquired asset as on 01 June 2016. Consequent
changes have also been made in the Form-1 for disclosure.
2 Can the amount declared under the Scheme for an earlier assessment year be taken into account to explain the
transaction(s) in the assessment proceedings for subsequent assessment year (AY)(s)?
As per section 189 of the Finance Act, 2016, any declaration made under the Scheme shall not affect finality of completed assessments.
However, in an assessment proceeding before the Tax Officer for an AY subsequent to the year for which the income is declared under the Scheme, the income declared for an earlier AY can be taken into account to explain the transactions, provided there is a nexus between the income declared and the transactions of the subsequent AY.
3 Will the valuation report of assets declared under the Scheme be called for by the department for any enquiry at any time?
The valuation report from a registered valuer shall not be questioned by the department. However, the valuer is expected to furnish a true and correct valuation report in accordance with accepted principles of valuation. In case of any misrepresentation, appropriate action as per law shall be taken against the registered valuer.
4 Though the FMV as on 1 June, 2016 is taxed under IDS, and such amount will be treated as cost of acquisition at the time of future sale of concerned asset, will such treatment affect the character of the asset as long term or short term?
The issue was earlier considered, and it had been clarified vide Circular No.17 dated 20 June 2016 that in such cases, period of holding shall be deemed to begin from 01 June 2016 as the asset has been revalued on such date. However, considering representations received from various stakeholders and the fact that this may lead to complications in
calculation of capital gain at the time of sale of asset which was partly funded from undisclosed income now declared under the Scheme, the matter has been reconsidered. Accordingly, in supersession of the earlier clarification referred to above, it is clarified that the period of holding of asset declared under the Scheme shall be based on the actual date of acquisition of such asset. However, the indexation benefit in respect of the amount declared under the Scheme shall be available from 01 June 2016 only.
5 What will be the value of immovable property to be declared under the Scheme in a case where the cost of immovable property is only partly evidenced by a registered deed?
In such a case, the option of calculating the FMV of the immovable property based on applying the CII to stamp duty value shall be available only in respect of that part of the property the cost of which is evidenced by a registered deed. The remaining part the fair market value of the property shall be determined based on the normal provisions.
6 A declarant has already filed a declaration under the Scheme determining the value of immovable property on the basis of Income Declaration Scheme Rules, 2016 prior to their amendment vide the Income Declaration Scheme (Third Amendment) Rule notified vide CBDT Notification No.
74 dated 17 August 2016. In such a case can the declarant can revise the
declaration based on such amended rules?
Yes, even if such revision may result in downward revision of the declared amount in respect of the immovable property.
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No. FAQs Answers/ Clarifications
7 Can the payment of amount payable under the Scheme be made in cash to Banks? Further, can the amount disclosed under the Scheme be deposited in the bank account in cash?
The Reserve Bank of India (RBI) has been requested to issue instructions to banks to allow payment of tax under the Scheme in cash. The RBI has also been requested to instruct the banks to allow deposit of cash over the counter in accordance with its existing master circular no.DBOD No.Leg.BC.21/09.07.006/2014-15 dated 1 July 2014.
8 Will the information of cash deposits made in bank consequent to declaration made under the Scheme be picked up by the FIU or reported to the income-tax department?
It is clarified that no adverse action shall be taken against the declarant by the FIU or the income-tax department solely on the basis of the information regarding cash deposit made consequent to declaration under the Scheme.
9 In case a trust or institution registered under section 12A of the Income-tax Act, 1961 (the Act) files a declaration under the Scheme, will the registration under section 12A be cancelled on the basis of such declaration?
No, the registration shall not be cancelled based solely on this disclosure.
10 Where a person has claimed weighted deduction, say 175%, on account of making bogus donation, then what should be the amount of declaration under the Scheme?
The declarant has to declare the amount of weighted deduction claimed in respect of bogus donation i.e. 175% of the bogus donation in this case.
11 In a case where the return of income has not been filed for an AY, but the time limit for filing the same has not expired under section 139 of the Act, can the declaration under the Scheme be filed for such AY?
Declaration can be made under the Scheme for an AY for which return of income has not been filed even though the time limit for filing the return under section 139 of the Act has not expired.
12 In answer (b) to question no.6 of Circular No.17 of 2016 dated 20 June 2016, it has been stated that a “person is barred from making a declaration under the Scheme in respect of an undisclosed income in which the survey was conducted”. Please clarify.
The clause (b) of answer 6 may be read as, “In case of survey operation, the person is barred for making a declaration under the Scheme in respect of the previous year in which the survey was conducted. The person is, however, eligible to make declaration in respect of undisclosed income of any other previous year”.
The takeaways
Amendment in the rules is a welcome step and, among other things, provides procedural relief to declarants from obtaining valuation of immovable property.
The declarants now have the option, in case where property is evidenced by a deed registered with any state government authority, to take the stamp value and, in case property was
acquired prior to 1 April 1981, to take the FMV as on 1 April, 1981 for making the declaration. Such value should be increased by applying CII. Prior to the
amendment, the Scheme provided for compulsory
valuation of immovable property as on 1 June, 2016 where any undisclosed immovable property was declared.
Declarants can revise their earlier declaration even where the property value by applying the amended rules is lower than the value declared earlier.
Let’s talk
For a deeper discussion of how this issue might affect your business, please contact:
Tax & Regulatory Services – International Assignment Services
Gautam Mehra, Mumbai +91-22 6689 1154
[email protected] Kuldip Kumar, Gurgaon +91-124 616 9609
[email protected] Sundeep Agarwal, Mumbai +91-22 6119 8438
[email protected] Ravi Jain, Bengaluru
+91-80 4079 6024 [email protected]
Tax Insights
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