The Income Declaration Scheme, 2016 & The Direct Tax Dispute Resolution Scheme, 2016

Talkathon on #AskOnIncomeDisclosure with Smt. Rani Singh Nair & Shri S K Sahai

Awareness programme on The Income Disclosure Scheme 2016 by the Bangalore Branch of SIRC of ICAI

The Finance Minister explained the Income Declaration Scheme, 2016 in his budget speech for 2016 – 2017 in specific section for Reducing litigation and providing certainty in taxation. (2016) 381 ITR 9 (St.)(35)

“We are moving towards a lower tax regime with non-litigious approach. Thus, while compliant taxpayers can expect a supportive interface with the department, tax evasion will be countered strongly. Capability of the tax department to detect tax evasion has improved because of enhanced access to information and availability of technology driven analytical tools to process such information. I want to give an opportunity to the earlier non- compliant to move to the category of compliant.

I propose a limited period Compliance Window for domestic taxpayers to declare undisclosed income or income represented in the form of any asset and clear up their past tax transgressions by paying tax at 30%, and surcharge at 7.5% and penalty at 7.5%, which is a total of 45% of the undisclosed income. There will be no scrutiny or enquiry regarding income declared in these declarations under the Income Tax Act or the Wealth Tax Act and the declarants will have immunity from prosecution. Immunity from Benami Transaction (Prohibition) Act, 1988 is also proposed subject to certain conditions. The surcharge levied at 7.5% of undisclosed income will be called Krishi Kalyan surcharge to be used for agriculture and rural economy. We plan to open the window under this Income Disclosure Scheme from 1st June to 30th September, 2016 with an option to pay amount due within two months of declaration.

Our Government is fully committed to remove black money from the economy. Having given one opportunity for evaded income to be declared once, we would then like to focus all our resources for bringing people with black money to books.”

Notes on Clauses on The Income Declaration Scheme, 2016 as per the Finance Bill, 2016. (2016) 381 ITR 169 (St.)(236)

Income Declaration Scheme

Clauses 178 to 196 of the Bill seeks to insert a new Chapter IX relating to Income Declaration Scheme, 2016. The said Scheme, inter alia, provides for declaration of undisclosed income by any person. The scheme shall be in operation from the 1st day of June, 2016 till a date to be notified by the Central Government in the Official Gazette. The proposed Chapter, inter alia, provides for levying a tax of thirty per cent. on the undisclosed income declared in the scheme, a surcharge at the rate of twenty-five per cent. of such tax as Krishi Kalyan Cess; and penalty at the rate of twenty- five per cent. of tax; procedure and manner of filing the declaration under the said Scheme; undisclosed income declared under the said Scheme not be included in the total income or affect finality of completed assessments; income declared under the said Scheme shall not be refundable; exemption from wealth-tax in respect of assets specified in declaration; power to remove difficulty by the Central Government; and power of Central Board of Direct Taxes with the approval of the Central Government to make rules for the purposes of the said Scheme.

The Finance Minister explained the Direct Tax Dispute Resolution Scheme, 2016 in his budget speech for 2016 – 2017 in specific section for Reducing litigation and providing certainty in taxation. (2016) 381 ITR 9 (St.)(36 – 37)

162. Litigation is a scourge for a tax friendly regime and creates an environment of distrust in addition to increasing the compliance cost of the tax payers and administrative cost for the Government. There are about 3 lakh tax cases pending with the 1st Appellate Authority with disputed amountbeing 5.5 lakh crores. In order to reduce this number, I propose a new Dispute Resolution Scheme (DRS).

163. A taxpayer who has an appeal pending as of today before the Commissioner (Appeals) can settle his case by paying the disputed tax and interest up to the date of assessment. No penalty in respect of Income-tax cases with disputed tax up to Rs. 10 lakh will be levied. Cases with disputed tax exceeding Rs. 10 lakh will be subjected to only 25% of the minimum of the imposable penalty for both direct and indirect taxes. Any pending appeal against a penalty order can also be settled by paying 25% of the minimum of the imposable penalty. Certain categories of persons including those who are charged with criminal offences under specific Acts are proposed to be barred from availing this scheme.

164. I had in my Budget speech of July, 2014 assured that this Government would not retrospectively create a fresh tax liability. I had also hoped then that the cases pending in various courts and other legal fora relating to certain retrospective amendments undertaken to the Income-tax Act, 1961, through the Finance Act, 2012 will soon reach their logical conclusion. I would like to reiterate that we are committed to provide a stable and predictable taxation regime. We will not resort to such amendments in future. I had also announced constitution of a High Level Committee which would oversee any fresh case where the assessing officer proposes to assess or reassess the income in respect of indirect transfers by applying the retrospective amendment. In order to allay any fears of tax adventurism, this Committee will now be chaired by the Revenue Secretary and consist of Chairman, CBDT and an expert from outside. This Committee will effectively oversee the implementation of the assurances.

165. In order to give an opportunity to the past cases which are ongoing under the retrospective amendment, I propose a one-time scheme of Dispute Resolution for them, in which, subject to their agreeing to withdraw any pending case lying in any Court or Tribunal or any proceeding for arbitration, mediation etc. under BIPA, they can settle the case by paying only the tax arrears in which case liability of the interest and penalty shall be waived.

The Finance Minister explained the Direct Tax Dispute Resolution Scheme, 2016 in the Notes and Clauses on Finance Bill, 2016. (2016) 381 ITR 169 (St.)(236)

Clauses 197 to 208 of the Bill seeks to insert a new Chapter X in the Finance Bill, 2016 which deals with the Direct Tax Dispute Resolution Scheme, 2016.

The Scheme is proposed to come in force from 1st June, 2016 and be open for declaration made up to a date to be notified by the Central Government in the Official Gazette.
The new Chapter, inter alia, provides––

(a) the definition of certain expressions relating to “declarant”, “designated authority”, “disputed income”, “disputed tax”, “disputed wealth”, “specified tax” and “tax arrear”;

(b) the proviso relating to the declaration of tax payable under this Scheme by the declarant;

(c) the provisions relating to the particulars to be furnished in the form of declaration;

(d) the provisions relating to the time and manner of payment;

(e) the provisions relating to granting of immunity from initiation of proceedings in respect of an offence and imposition of penalty in certain cases;

(f) the provisions relating to no refund of amount paid under the Scheme;

(g) the provisions relating to other benefit, concession or immunity not to apply in other proceedings;

(h) the provisions relating to non-applicability of the Tax Dispute Resolution Scheme, 2016 in certain cases;

(i) the provisions relating to the power of the Central Government to issue directions; and

(j) the provisions relating to the power to remove difficulties in giving effect to the provisions of the Direct Tax Dispute Resolution Scheme, 2016.