Mains 2016: Income Declaration Scheme, 2016, one more step to unearth Black Money

Context: The Union Finance Minister Shri Arun Jaitley proposed this Scheme to declare undisclosed income in his 2016 budget presentation.

It has provided an opportunity to persons who had not paid full taxes in the past to come forward and declare their domestic undisclosed income and assets.

Provisions:

1. It was a scheme with 4 month window (starting from June 1^st, 2016) to be provided to those who have undeclared income or assets.
2. Assets specified in the declaration will;
   1. get exempted from Wealth tax.
   2. get immunity from prosecution under the IT Act and Wealth Tax Act and also the Benami Transactions (Prohibition) Act, 1988.
3. Non-payment of total taxes, penalty and surcharge in time or declaration by misrepresentation or suppression of facts shall render the declaration void.
4. Foreign assets or income to which the Black Money Act 2015 applies are not eligible for declaration under this scheme.
5. The declared income will be taxed at the rate of 30 per cent and a Krishi Kalyan cess of 25 per cent on this tax and another 25% of this tax will be charged as penalty. Thus, total 45% tax will be charged on the disclosed income.

Assessment of the scheme:

 1. A total of 64,274 citizens have declared income tax under the Income Declaration Scheme and the amount that they have disclosed is Rs 65,250 crore.

1. • The amount collected through this scheme will help in infrastructural and other expenditure.
2. A sizable collection implies widening of the tax base which may translate to;

• higher social sector expenditure
• reduced tax rates in future

3. Although it is claimed by government that it isn’t an amnesty schemes due to higher tax being charged on the undisclosed income. But when the same income penalizes by income tax department, the taxes would have been much higher.
   • So it is considered as an amnesty scheme only which discourages the honest tax payers.
4. There is also a concern that this is a temporary phenomenon. People will again revert back to hiding income and wait for another scheme like this.

Conclusion:

Nevertheless, the present scheme, while refusing to reward the dishonest, extends an opportunity to come clean by paying more than the normal tax.  But still there is a long way to go in wiping out the black money from Indian Economy. Also, the other initiatives are needed to be implemented strictly.