What is Income Declaration Scheme?
The income declaration scheme was introduced by the Government of India in 2016 in a move that was aimed at encouraging tax evaders to declare their income and pay the applicable taxes voluntarily. It was introduced for those individuals who have not declared their income properly. Under this scheme, such individuals can declare their undisclosed income by paying a tax of 30%, a surcharge @7.5%, and a penalty @7.5%, which is a total effective tax rate of about 45%.
Who can Disclose Income and Assets Under the Income Declaration Scheme?
All the citizens who have not declared their income wholly or partially and paid their taxes in full in the past can come forward and declare their undisclosed income or assets. All domestic taxpayers are eligible to declare income under the income declaration scheme. These include -
- Individual
- HUF
- Company (Private Limited/ Public Limited/ One Person Company)
- Firm (LLP/ Partnership Firm)
- An Association of Persons or a Body of Individuals, incorporated or not incorporated.
- Artificial judicial person and a local authority.
Income Declaration Scheme - Benefits
By making a proper declaration of undisclosed income under the income declaration scheme and paying the relevant tax and penalty, individuals will be exempt from any scrutiny or inquiry under the Income Tax Act or Wealth Tax Act. Additionally, the declarant will receive immunity from prosecution and the Benami Transaction Act 1988, subject to certain conditions. The benefits of making a valid declaration are as follows:
- The declared undisclosed income will not be included in the total income for any assessment year under the Income Tax Act.
- Information in the declaration will not be used as evidence against the declarant in penalty or prosecution proceedings under the Income Tax Act or the Wealth Tax Act 1957.
- Immunity from the Benami Transactions (Prohibition) Act, 1988, will be granted for the disclosed assets, provided the benamidar transfers the asset to the declarant or their legal representative by September 30, 2017.
- The value of the declared asset will not be subject to wealth tax for any assessment year.
- Declaring undisclosed income will not affect the finality of completed assessments. Declarants cannot re-open any assessments or reassessments under the Income Tax Act or the Wealth Tax Act, 1957, nor claim any set-off or relief in any appeal or other proceedings related to such assessments.
What is the Penalty Rate of Income Tax?
If you declare income under the Income Declaration Scheme, you need to pay tax at the below-mentioned rates -
- Income Tax @30% of the undisclosed income.
- Surcharge @7.5% of undisclosed income.
- Penalty @7.5% undisclosed income.
Therefore, a total of 45% tax on the undisclosed income needs to be paid under the Income Declaration Scheme.
The given forms are required for declaring income under the income declaration scheme -
- Form 1: This is a declaration form that the taxpayer must complete and submit by the specified due date, September 30, 2016.
- Form 2: This form serves as an acknowledgment of the declaration and must be issued within 15 days from the end of the month in which the declaration was filed.
- Form 3: The taxpayer must submit Form 3 of the income declaration scheme this form to confirm the payment of tax, surcharge, and penalty by the specified date, November 30, 2016.
- Form 4: This certificate of declaration is issued by the Principal Commissioner of Income Tax (PCIT) or Commissioner of Income Tax (CIT) within 15 days from the date of payment confirmation.
How to Declare Income Under Income Declaration Scheme?
As described under the Income Declaration Scheme Rules, 2016, taxpayers are required to fill out Form 1 under the income declaration scheme. Form 1 can be submitted through the following modes -
- Online Using a Digital Signature
- By transmission of data in the electronic form under the Electronic Verification Code (EVC).
- In print form to the concerned principal commissioner.
Example
Mr.X assisted Mr.Y in purchasing a residential plot and earned a commission of Rs.3 lakhs. However, Mr.X did not disclose this income in his ITR as he received this money in cash and had no proof of receipt. This incident took place in 2016.
However, now he wants to declare this income and be honest with the government. In this case, Mr.X can declare this income under the income declaration scheme by filing Form 1 and submitting it online.
ITR filing for FY 2024-25 has begun. File your ITR now to be tax-compliant and avoid further penalties and taxes. If you have any tax-related queries, you can connect with our tax experts. Get CA-assisted ITR filing services now!
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