Effective Tax Rate Under New Income Disclosure Scheme 2016
Jeet Shah
Pranam.
There are two views on the effective tax rate under new income disclosure scheme will work out to 31% where the IT dept will not ask any question on the money used to pay tax .They mean to say disclose Rs.100 and pay Rs.45 and this Rs.45 are not a part of Rs.100 declared so effective tax rate is 31% i.e (45/145) .However , I believe that it is pretty clear that the above contention is not true .
Such a thought is due to Q.5 and its answer of Circular No. 25 of 2016 which says that
Question No.5: Where a valid declaration is made after making valuation as per the provisions of the Scheme read with IDS Rules and tax, surcharge & penalty as specified in the Scheme have been paid, whether the department will make any enquiry in respect of sources of income, payment of tax, surcharge and penalty?
Answer: No.
However , Q.6 of Circular No. 27 of 2016 makes it very clear as under -
Question No.6: With reference to question No. 5 issued vide Circular No. 25 of 2016,wherein it has been stated that the department will not make any enquiry in respect of sources of income, payment of tax, surcharge and penalty, it may be clarified that whether the payment under the Scheme can be made out of undisclosed income without including the same in the income declared, thereby bringing down the effective rate of tax, surcharge and penalty payable under the Scheme to around 31
per cent?
Answer: It is clarified that the intent of the clarification issued vide question No.5 of Circular No. 25 of 2016 was limited to conduct of enquiry by the Department. It in no way intends to modify or alter the rate of tax,surcharge and penalty payable under the Scheme which have been clearly specified in the Scheme itself. 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. This is illustrated by the following example —
In a case a person declares Rs. 100 lakh as undisclosed income, being the fair market value of undisclosed immovable property as on 1st June, 2016 and 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 45 lakh utilized for payment of tax, surcharge & penalty but not included in the declaration filed under the Scheme. To get immunity under the Scheme in respect the entire undisclosed income of Rs.145 lakh, the declarant has to declare undisclosed income of Rs.145 lakh (Rs.100 lakh being the undisclosed income represented by immovable property and Rs.45 lakh being the payment made from undisclosed income) and pay tax, surcharge and penalty under the Scheme amounting to Rs.65.25 lakh i.e., 45 per cent of Rs.145 lakh
Also a clarification has been issued
http://www.incometaxindia.gov.in/…/Circu…/circular252016.pdf
http://www.incometaxindia.gov.in/…/…/Circular27_14072016.pdf
Jeet R.Shah
M.Com , CFP , Ph.D
Partner - Veer Consultancy Services
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