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.
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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)