The government has decided to open a one-time, four-month compliance window for domestic black money-holders. This gesture is intended to help them come clean by paying tax and penalty of 45 per cent.
“We are moving towards a lower tax regime with a non-litigious approach. Thus, while compliant taxpayers can expect a supportive interface with the department, tax evasion will be countered strongly,” Finance Minister Arun Jaitley said.
He said the capability of the tax department to detect evasion had improved because of increased access to information and the 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.”
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The compliance window will enable one to declare undisclosed income or income represented in the form of any asset, and clear up past tax transgressions by paying tax at 30 per cent, a surcharge of 7.5 per cent and a penalty of 7.5 per cent. This will add up to 45 per cent of the undisclosed income. The surcharge at 7.5 per cent will be called Krishi Kalyan surcharge, and the money thus raised will be used for agriculture and rural economy.
There will be no scrutiny of money declared, either under the Income-Tax Act or the Wealth Tax Act. And the declarants will have immunity from prosecution. They will also get immunity from the Benami Transaction (Prohibition) Act, 1988, subject to certain terms. The compliance window, named Income Disclosure Scheme, will open on June 1. It will be open till September 30. The scheme provides one the option to pay the amount due within two months of declaration.
Mr. Jaitley said the government was committed to removing black money from the economy. “Having given one opportunity for evaded income to be declared, we would like to focus all our resources on bringing people with black money to books,” he said.
‘Compliance window remedies flaws in 1997 scheme’
Finance Minister Arun Jaitley clarified in a post-budget select press briefing that the compliance window proposed in the Union Budget 2016 was not an amnesty scheme and remedies the flaws in the Voluntary Disclosure of Income Scheme that former Finance Minister P. Chidambaram had provided in 1997.
Under the scheme, domestic tax payers will be able to declare undisclosed income or assets by paying tax at 30 per cent and surcharge at 7.5 per cent as well as a penalty of a similar amount. “Declarants will have to pay up 45 per cent of the undisclosed income to avail of this compliance scheme so it is not unfair to the honest tax payer… Mr. Chidambaram’s scheme didn’t include a penalty…it only collected the tax due.”
The 1997 VDIS is among the most successful such schemes as it garnered over Rs. 9,000 crore in taxes. Mr. Jaitley also said that unlike the VDIS, the tax, penalty and surcharge will be payable on the current value of the asset income being declared.
The window will be provided from June 1 to September 30.
Mr. Jaitley also said the government was hopeful that companies would take full advantage of the dispute resolution scheme which the budget proposed to resolve cases emanating from retrospective amendment of tax laws made in 2012. The one-time Direct Tax Dispute Resolution Scheme is aimed at resolving cases pending in any Court or Tribunal, Arbitration or mediation under the Bilateral Investment Protection Agreement (BIPA). It will provide a stable and predictable taxation regime, said Mr. Jaitley.
“As per the existing law, these companies are liable to pay everything, including principal tax, interest and penalty… now they can simply pay off principal amount and entire interest and penalty can be waived off,” Mr. Jaitley told reporters. The government expects that the scheme will help to hasten the resolution of the outstanding issues between the tax department and companies such as Vodafone and Cairn following notices for multibillion dollar tax liabilities.