Clarifications on the income declaration scheme 2016
Circular No. 17/2016 was issued by the Central Board of Direct Taxes on 20 May 2016. Its subject is Clarifications on the income declaration scheme 2016.
This is a clarification. The Board is stating how it reads a provision. That reading binds the department; it does not bind a court, and where the section says otherwise the section wins.
The first set of answers on the Income Declaration Scheme, 2016, the Chapter IX scheme of the Finance Act, 2016 under which undisclosed income could be declared on payment of tax, surcharge and penalty totalling 45 per cent. On capital gains, the declarant remains liable when the asset is later sold, with the fair market value as on 1 June 2016 taken as the cost of acquisition and, on this circular's view, the holding period starting from that date. On eligibility, a notice under section 142(1), 143(2), 148, 153A or 153C bars a declaration only for the assessment year to which the notice relates and where the proceeding is pending — other years remain open — and the bar applies where the notice was served on the declarant on or before 31 May 2016, with the declarant required to state in Form 1 whether he has received any such notice. Where an asset was funded partly out of income already assessed, sub-rule (2) of rule 3 of the Income Declaration Scheme Rules, 2016 requires the fair market value to be reduced in the proportion the assessed income bears to the total cost of the asset.
Queries were received from the public about the scope of the Scheme and the procedure to be followed, and the Board answered them in question-and-answer form.
| Under the 1961 Act | Now |
|---|---|
| s.142 | s.268 |
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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).
Question No.2: Where a notice under section 142(1)/ 143(2)/ 148/ 153A/ 153C of the
Income-tax Act has been issued to a person for an assessment year
will he be ineligible from making a declaration under the Scheme?
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Answer: The person will only be ineligible from declaration for those
assessment years for which a notice under section
142(1)/143(2)/148/153A/153C is issued and the proceeding is
pending before the Assessing Officer. He is free to declare
undisclosed income for other years for which no notice under above
referred sections has been issued.
Question No.3: As per the Scheme, declaration cannot be made where an undisclosed
asset has been acquired during any previous year relevant to an
assessment year for which a notice under section 142, 143(2), 148,
153A or 153C of the Income-tax Act has been issued. If the notice has
been issued but not served on the declarant then how will he come to
know whether the notice has been issued?
Answer: The declarant will not be eligible for declaration under the Scheme
where the undisclosed income relates to the assessment year where a
notice under section 142, 143(2), 148, 153A or 153C of the Income-tax
Act has been issued and served on the declarant on or before 31st day
of May, 2016. The declarant is required to file a declaration regarding
receipt of any such notice in Form-1.
Question No.4: In a case where the undisclosed income is represented in the form of
investment in asset and such asset is partly from income that has
been assessed to tax earlier, then what shall be the method of
computation of undisclosed income represented by such undisclosed
asset for the purposes of the Scheme?
Answer: As per sub-rule (2) of rule 3 of the Income Declaration Scheme Rules,
2016, where investment in any asset is partly from an income which
has been assessed to tax, the undisclosed income represented in form
of such asset will be the fair market value of the asset determined in
accordance with sub-rule (1) of rule 3 as reduced by an amount which
bears to the value of the asset as on the 1.6.2016, the same proportion
as the assessed income bears to the total cost of the asset. This is
illustrated by an example as under:
Investment in acquisition of asset in previous year 2013-14 is of Rs.500
out of which Rs.200 relates to income assessed to tax in A.Y. 2012-13
and Rs.300 is from undisclosed income pertaining to previous year
2013-14. The fair market value of the asset as on 01.06.2016 is Rs.1500.
The undisclosed income represented by this asset under the scheme
shall be:
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1500 minus (1500 X 200 ) = Rs.900
500
When testing eligibility to declare a year against a pending notice, and years later, in the capital gains computation on sale of an asset that was declared.
The circular's own illustration: an asset acquired in previous year 2013-14 for Rs. 500, of which Rs. 200 came from income assessed in assessment year 2012-13 and Rs. 300 from undisclosed income, with a fair market value of Rs. 1,500 as on 1 June 2016. The undisclosed income to be declared is Rs. 1,500 less Rs. 1,500 multiplied by 200 and divided by 500, that is Rs. 900.
Rules it names. Rule 3 of the Income-tax Rules, 1962. The 1962 Rules were replaced by the Income-tax Rules, 2026, which renumbered nearly everything: a rule number quoted here almost never means the same rule today.
It mentions. Circular No. 17/2016
Source: the Income Tax Department’s own published text — its page for this instrument.