Introduction and Explanation of Income Declaration Scheme 2016

EXPLANATORY NOTES ON PROVISIONS OF THE INCOME DECLARATION
SCHEME, 2016 AS PROVIDED IN CHAPTER IX OF THE FINANCE ACT, 2016

Introduction
The Income Declaration Scheme, 2016 (referred to here as ‘the Scheme’) is contained in the
Finance Act, 2016, which received the assent of the President on the 14th of May 2016.

2. The Scheme provides an opportunity to persons who have paid not full taxes in the
past to come forward and declare the undisclosed income and pay tax, surcharge and
penalty totalling in all to forty-five per cent of such undisclosed income declared.

Scope of the Scheme
3. A declaration under the aforesaid Scheme may be made in respect of any income or
income in the form of investment in any asset located in India and acquired from income
chargeable to tax under the Income-tax Act for any assessment year prior to the assessment
year 2017-18 for which the declarant had, either failed to furnish a return under section 139
of the Income-tax Act, or failed to disclose such income in a return furnished before the date
of commencement of the Scheme, or such income had escaped assessment by reason of the
omission or failure on the part of such person to make a return under the Income-tax Act or
to disclose fully and truly all material facts necessary for the assessment or otherwise.
Where the income chargeable to tax is declared in the form of investment in any asset, the
fair market value of such asset as on 1st June, 2016 computed in accordance with Rule 3 of
the Income Declaration Scheme Rules, 2016 shall be deemed to be the undisclosed income.

Clarifications and FAQs on Income Declaration Scheme 2016

Circular No.17 of 2016
F.No.142/8/2016-TPL
Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes
(TPL Division) ***
Dated 20th of May, 2016
 
Clarifications on the Income Declaration Scheme, 2016 

The Income Declaration Scheme, 2016 (hereinafter referred to as ‘the Scheme’) incorporated as Chapter IX of the Finance Act, 2016 provides an opportunity to persons who have not paid full taxes in the past to come forward and declare the undisclosed income and pay tax, surcharge and penalty totaling in all the 45% of such undisclosed income declared. The Income Declaration Scheme Rules, 2016 (hereinafter referred to as ‘the Rules’) have been notified. In regard to the scheme queries have been received from the public about the scope of the scheme and the procedure to be followed. The Board has considered the same and decided to clarify the points raised by issue of a circular in the form of questions and answers as follows.-

Question No.1: Where an undisclosed income in the form of investment in asset is declared under the Scheme and tax, surcharge and penalty is paid on the fair market value of the asset as on 01.06.2016, then will the declarant be liable for capital gains on sale of such asset in the
future? If yes, then how will the capital gains in such case be
computed?
Answer: Yes, the declarant will be liable for capital gains under the Income-tax Act on sale of such asset in future. As per the current provisions of the Income-tax Act, the capital gains is computed by deducting cost of acquisition from the sale price. However, since the asset will be taxed at its fair market value the cost of acquisition for the purpose of Capital Gains shall be the fair market value as on 01.06.2016 and the period of holding shall start from the said date (i.e. the date of determination of fair market value for the purposes of the Scheme).