The prime purpose of the Income Declaration Scheme, 2016, is attracting taxpayers to disclose their unaccounted domestic/Indian income and assets prior to the financial year (FY) 2016–2017.
Now that the voluntary disclosure window under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (Black Money Law) has ended, the Government of India (GOI) has announced the Income Declaration Scheme, 2016 (Scheme). The prime purpose of the Scheme is attracting taxpayers to disclose their unaccounted domestic/Indian income and assets prior to the financial year (FY) 2016–2017. The net impact of the Scheme, provided voluntary disclosure is made, amounts to 45-percent tax on the income disclosed. However, if such disclosure were not to be made and the taxman were to uncover this, the penalty could range between 100 percent to 300 percent of the income not duly declared.
Whilst it is stated that the Scheme will not apply to undisclosed foreign income and assets, which was the subject matter of the Black Money Law, there are a few points to consider in this respect:
A resident Indian filing tax returns is subject to Indian income tax on his global income. It may be possible that income arose from a foreign source but was received in India in years prior to FY 2016–2017 and was not declared in tax returns.
The Black Money Law defines undisclosed foreign income as the total amount of undisclosed income of an assessee from a source located outside India.
Minus a detailed forensic examination, which the GOI tax administration machinery does not have, it may be near impossible to segregate domestic income subject to the Scheme from foreign income received in India.
Consider a case study of an Indian incorporated company or individual receiving:
- Royalties or business income from overseas persons or entities; and
- Dividends, capital gains or interest income from overseas persons or entities.
In either case, if these income streams pertained years prior to FY 2016–2017 and was not declared in tax returns and has subsequently been re-invested or mingled in assets (whether Indian or foreign), it would likely be possible to declare the same within the contours of the Scheme.
It would appear that the Scheme allows, without expressly stating so, an additional window for certain types of source foreign income as well, as demonstrated in the case study above.