Arun Jaitley’s IDS vs Chidambaram’s VDIS 1997: A comparative look at tracking black money

Arun Jaitley added that the Consolidated Fund of India would get the collected black money and it will be used for social security purposes.

By: Express Web Desk | New Delhi | Published:October 1, 2016 7:30 pm
black money, black money news, income tax, income tax last date, black money arun jaitley, black money declaration, arun jaitley, income tax declaration, arun jaitley news, jaitley black money, india news, business news Arun Jaitley (left) and P Chidambaram (Source: PTI Photo/File)

When Finance Minister Arun Jaitley unveiled the Income Tax Declaration Scheme in his 2016 budget speech, he had clarified that the four-month window for domestic taxpayers was neither an amnesty scheme nor the famous Voluntary Disclosure of Income Scheme (VDIS). While speaking to reporters on Sunday, when Jaitley announced that Rs 65,250 crore had been collected by  64,275 declarants under IDS 2016, he also added that the government didn’t intend to benefit non-tax compliant vis-a-vis tax compliant.

So what was the VDIS?

In the period 1951-1997, 10 amnesty schemes were announced to combat the problem of undeclared money, most of which were misused. The non-tax compliants declared undisclosed incomes and assets, and ended up paying lesser than normal taxes, with all immunities. However, two schemes during this period had been successful. One of them was the Voluntary Disclosure Scheme, 1997, which had been introduced for a compliance period of six months. Under VDIS,  the tax payable on the declared amount was at the rate of 35 per cent in case of companies and firms, and 30 percent in the case of others. The income declared under VDIS had been Rs 33,000 crore. However, since the real value of the assets declared was double the value considered for tax purposes and taxes were paid at less than 50% of the normal rate, with zero interest and penalties, the success came at the cost of revenue.

Also, irrespective of the year or nature or source of funds, the amount disclosed, either as cash, securities or assets, whether in India or abroad, was to be charged at the highest tax rate and 77.5 per cent of the proceeds from the VDIS were to accrue to state governments, while the share of the central government was earmarked for financing the basic minimum services programme, and building infrastructure.

Reports suggested that the fair value of the declarations under the scheme would have been over Rs 60,000 crore, rather than the Rs 33,000 crore that was actually declared. That scheme attracted 4.75 lakh declarations. Almost 3.09 lakh pertained to jewellery and other movable assets.

What is IDS ?

Finance Minister Arun Jaitley proposed clearing up past transgression of domestic taxpayers by paying tax at 30 per cent, a surcharge at 7.5 per cent, a penalty at 7.5 per cent, which is total of 45 per cent of undisclosed income. Jaitley also announced that the surcharge levied at 7.5 per cent of undisclosed income will be called Krishi Kalyan surcharge and it was to be used for agriculture and rural economy. After this one “opportunity”, the government would “then like to focus all our resources for bringing people with black money to books,” he had said.

Though IDS carries reasonable discounts on interest and penalty, taxes are payable at more than normal rates. Thus it creates a win-win situation for both the people and the government as the tax rate here is more than the zero rate payable under the earlier scheme. The tax payable is just 15% more than the normal tax rate of 30%. Thus it can be said that opportunity is given at a little extra cost to avoid further interest, penalty or prosecution under the Income Tax Act, 1961, and the Benami Transaction (Prohibition) Act, 1988. On Saturday, Arun Jaitley added that the Consolidated Fund of India would get the collected black money and it will be used for social security purposes.

In 2016, the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 was also enacted to pursue black money stashed overseas. According to the Act, any undisclosed foreign income and assets held abroad by a person who is ordinarily resident in India, was to be levied with a tax at the rate of 30 per cent. It also provided for a penalty equivalent to three times the value of tax, taking the total tax exposure to as high as 120 per cent. The Act also has a provision for imprisonment for a maximum term of 10 years. The government had also said the total disclosures under the compliance window for foreign assets was 638 while the total illegal foreign assets disclosed were worth Rs 4,147 crore, which was later revised to 644 declarations for black money. Ninety per cent of the collection came from 5% of declarations.

(Inputs from Anchal Magazine, Shaji Vikraman and Rajesh M Dayal)

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  1. N
    Oct 1, 2016 at 3:03 pm
    We need a diffrent finance minister who really can bring the black money back as Modiji promissed! May be Swamiji?
    1. R
      roby mani
      Oct 1, 2016 at 3:52 pm
      Are there only 64,000 high income tax evaders in India out of a potion of 130 crores, and is the average undisclosed income only Rs 1.00 cr. a individual. I am certain that the undisclosed income of the persons such as Ambanis, Adanis, or Mallayas alone will be more than this amount. lt;br/gt; The amount works out to only an average of Rs 500 for a citizen as against Rs 13 lacs pronounced by Modi in his election speeches. The Prime Minister and Finance Minister need to get on their feet and go after the big fish to fulfill their promises to the nation as a w lt;br/gt; I EVALUATE THE ACHIVEMENT AS VERY POOR
      1. M
        Nov 20, 2016 at 12:00 am
        The "bigger fish" will be captured by the demonetisation move. At least I hope so.
        1. M
          Nov 19, 2016 at 11:56 pm
          The last statement is made in a different context, i. e. , Rs 4147 crore came from 644. This data is about the disclosure that happened in 2015.
          1. M
            Oct 1, 2016 at 9:45 pm
            65,275 crore collected from 64,250 who declared ? how fake is that !!!!! jaitely lives in a different world, for some reason he thinks he can lie everyday, like he did in court to save his rich clients, that the citizens will be fooled !!! and he is going to invest in social security !!!!! this man even bigger liar than his boss !!!!
            1. P
              P Chakraborty
              Oct 2, 2016 at 5:32 am
              This report/analysis in my view has only added to Global warming. The fact is this scheme shows almost double the number of people came forward with discloser compared to 1997 scheme. There is nothing beyond this simple fact. If IE wants to create an opportunity for the likes of Sitaram Yechury in connivance with Resident editor Ms Chitnis, to declare the scheme a FAILURE, its a different business issue.
              1. R
                Rohit Chandavarker
                Oct 1, 2016 at 3:14 pm
                Whatever be the nomenclature these schemes are tailored to facilitate the dishonest while the honest tax payer gets the short end of the;br/gt;Dishonesty pays!!!!
                1. X
                  Oct 1, 2016 at 11:33 pm
                  Another joke. Feku. The last sentence says 90% came from 5% of the disclosures. so in effect 62,000 persons declared 6,000 crores or on the average 10 lakhs each.
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