Tax Insights

from India Tax & Regulatory Services

Government notifies valuation

rules and issues FAQs on the
Income Declaration Scheme, 2016

May 25, 2016

In brief
The Finance Minister of India presented the Union Budget for the financial year 2016-17 on 29
February 2016. In his budget speech he proposed a limited period compliance window for domestic
taxpayers to declare their undisclosed income whether in the form of investment in assets in India or
otherwise, and clear up their past tax transgressions by paying a total of 45% (tax @30%, Krishi
Kalyan Cess @7.5% and penalty@7.5%) of the undisclosed income.

In this regard, the Income Declaration Scheme, 2016 (the Scheme) has been introduced as Chapter
IX of the Finance Act, 2016. The Scheme is effective from 1 June 2016 for a period of 4 months (i.e.
till 30 September 2016). Where any disclosure is made under the Scheme and applicable tax and
penalty are paid, no scrutiny or inquiry shall be undertaken in respect of such declarations. Further,
declarants will be provided immunity from penalty/ prosecution proceedings under the Income-tax
Act, 1961 (the Act) or/ and the Wealth-tax Act, 1957 (the Wealth-tax Act).

The Central Board of Direct Taxes (CBDT) has recently notified the Income Declaration Scheme
Rules, 2016 (the Rules) and issued explanatory notes along with clarifications in the form of
Frequently Asked Questions (FAQs) for better compliance of the Scheme.

In detail in the form of investment in Commissioner of Income-tax/

The CBDT has recently notified
the Income Declaration
Scheme Rules, 20161 (the
Rules) and issued explanatory
notes2 along with
clarifications3 in the form of
FAQs for better compliance of
the Scheme. Key features of the
Scheme are summarised as
under:-
Who can make the
declaration?
All persons, who have not paid
full taxes in the past can come
forward and declare their
undisclosed income, whether
1 2
Notification No. 33/2016, F.No.
142/8/2016-TPL, dated May 19, 2016
assets in India or otherwise.
Timelines
 The Scheme shall
commence from 1 June
2016 and is available up to
30 September 2016 to make
the declaration.
 Applicable tax (including
Krishi Kalyan Cess) and
penalty shall be paid on or
before 30 November 2016.
What can be covered in the
declaration?
The declaration shall be made
in Form No - 1 with the
designated Principal
Circular No. 16 of 2016, dated May
20, 2016
Commissioner of Income-tax
(PCIT/ CIT) on or before 30
September 2016. This can be
made in respect any income or
income in the form of
investment in any asset located
in India and acquired from
income chargeable to tax
under the Act for any financial
year (FY) prior to the FY 2016-
17 [assessment year (AY) 2017-
18] for which the declarant had
either:
 failed to furnish a return
under section 139 of the
Act, or
 failed to disclose such
income in a return
3
Circular No. 17 of 2016, dated May
20, 2016

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Tax Insights
furnished before the date of
commencement of the Scheme
i.e., 1 June 2016, or
 where the income has escaped
assessment by reason of the
omission or failure on the part
of such person to furnish a
return under the Act, or
 failed to disclose fully and
truly all material facts
necessary for the assessment
or otherwise.
What cannot be covered in the
declaration?
No declaration can be made in
respect of any undisclosed income
chargeable to tax under the Act
for which:-
 A notice under sections 142,
143(2), 148, 153A or 153C of the
Act has been issued and served
upon the person on or before 31
May 2016 in respect of such
assessment year for which the
proceeding is pending before
the tax officer (also refer
FAQ Nos. 2,3 & 5)
 A search has been conducted
under section 132 or a
requisition has been made
under section 132A or a survey
has been carried out under
section 133A in a previous year,
and the time for issuance of a
notice under section 143 (2),
section 153A or section 153C
for the relevant assessment
year has not expired. (also
refer FAQ No. 6)
However, in case the
assessment is completed but
certain income was neither
disclosed nor assessed then
such assessed income can be
disclosed under the Scheme.
(refer FAQ No. 7)
 Cases covered under the Black
Money (Undisclosed Foreign
Income & Assets) and
Imposition of Tax Act, 2015.
 Proceeding for prosecution of
any offence punishable under
Chapter IX (offences relating
PwC
to public servants) or Chapter
XVII (offences against
property) of the Indian Penal
Code or under the Unlawful
Activities (Prevention) Act or
the Narcotic Drugs and
Psychotropic Substances Act or
the Prevention of Corruption
Act are pending. (also refer
FAQ No. 11)
 A person is notified under
section 3 of the Special Court
(Trial of Offences Relating to
Transactions in Securities) Act
or a person in respect of whom
an order of detention has been
made under the Conservation
of Foreign Exchange and
Prevention of Smuggling
Activities Act, subject to the
conditions specified in the
Scheme.
Procedural Aspects
 The declaration is to be filed by
the declarant up to 30
September 2016 with the
jurisdictional PCIT/ CIT in
paper form or through online
in the e-filing website of the
Income tax department using
the digital signature of the
declarant or through electronic
verification code.
 Upon receipt of declaration
from the declarant, the PCIT/
CIT shall issue the
acknowledgment in Form No -
2 to the declarant within 15
days from the end of the month
in which the declaration has
been made.
 Proof of payment of tax
(including Krishi Kalyan Cess)
and penalty shall be furnished
by the declarant to such PCIT/
CIT in Form No - 3.
 The PCIT/ CIT shall grant a
certificate in Form No - 4 to
the declarant within 15 days of
the submission of Form No - 3.
Invalid Declaration
Failure to pay entire amount of
tax (including Krishi Kalyan Cess)
and penalty on or before 30
November 2016 and/ or any
misrepresentation or suppression
of facts or information will render
the declaration void.
In cases where the declaration is
rendered ineligible due to the
reasons mentioned above in
section – ‘’What cannot be
covered in the declaration’’, then,
it shall be deemed as if the
declaration was never made and
all the provisions of the Act,
including penalties and
prosecutions, shall apply
accordingly. (also refer FAQ
No. 9)
Any tax (including Krishi Kalyan
Cess) or penalty paid in
pursuance of the declaration
shall, however, not be refundable
under any circumstances.
Effect of valid declaration
Where a valid declaration has
been made, the following
consequence will follow –
 The amount of undisclosed
income declared shall not be
included in the total income of
the declarant under the Act for
any AY;
 The contents of the declaration
shall not be admissible in
evidence against the declarant
in any penalty or prosecution
proceedings under the Act and
the Wealth-tax Act;
 Assets specified in the
declaration shall be exempt
from wealth tax;
 Immunity from the Benami
Transactions (Prohibition) Act,
1988 subject to transfer of
asset to the declarant or his
legal representative within the
period specified in the Rules;
 Declaration of undisclosed
income will not affect the
finality of completed
assessments. The declarant will
not be entitled to claim re-
assessment of any earlier year
or revision of any order or any
benefit or set off or relief in any
appeal or proceedings under
the Act in respect of declared
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Tax Insights

undisclosed income or any tax, investment in any asset, the such shares and
surcharge or penalty paid same will be valued at its FMV securities on a
thereon. on 1 June 2016. recognised stock
exchange on a date
Where a person declares only a  FMV shall be determined for immediately
part of his undisclosed income various assets as tabulated preceding 1 June,
then he will get immunity only in below: 2016 where such
respect of undisclosed income shares and
declared under the Scheme and 1. Bullion, jewellery or
precious stones; securities were
no immunity will be available in traded on
respect of income which has been archaeological
collections, drawings, recognised stock
not declared. (FAQ No. 10) exchange.
paintings, sculptures or
Other Considerations any work of art; and B. In case of unquoted
immovable property share and securities6
 In case there is no declaration
under the Scheme for Higher of - Equity shares
undisclosed income, then such
income will be deemed to have  Cost of acquisition; and Higher of –
been accrued, arise or received
in the year in which a notice  The price that the asset  Cost of acquisition; and
under sections shall ordinarily fetch if
sold in the open market  FMV as on 1 June, 2016
142/143(2)/148/153/153A/153 determined by the
C of the Act is issued. (refer on the valuation date
𝐴+𝐵−𝐿
FAQ No. 8) (i.e. 1 June 2016), on the formula , where:
(𝑃𝐸)×(𝑃𝑉)
basis of the valuation
 At the time of declaration, no report obtained from a A= book value of all the
inquiry will be conducted by registered valuer4. assets (other than
the PCIT/ CIT except inquiring bullion, jewellery,
whether any proceeding under 2. Shares and Securities
precious stones, artistic
section A. In case of share and works, shares, securities
142/143(2)/148/153/153A/153 securities quoted5 on and immovable
C of the Act is pending for such any recognised stock property) as reduced by:
AYs. (refer FAQ No. 12) exchange–
(a) any amount of
 The information in respect of Higher of – income-tax paid, if
the declaration made will be any, less the amount
kept confidential similar to  Cost of acquisition; of income-tax refund
case of returns filed by the and claimed, if any, and
taxpayer. (refer FAQ No. 13)  Price as determined
in the following (b) any amount shown
 Subsequent sale of assets manner – as asset including the
disclosed in the form of unamortised amount
investment shall be liable to o The average of the of deferred
tax under the head “capital lowest and highest expenditure which
gains”. The cost of acquisition price of such does not represent
for the said purpose would be shares and the value of any
the fair market value (FMV) as securities quoted asset;
on 1 June, 2016 and the period on a recognised
of holding shall start from the stock exchange as B= FMV of bullion,
said date. ( refer FAQ No. 1) on 1 June, 2016; or jewellery, precious
stones, artistic works,
How does one value o Where there is no shares, securities and
undisclosed assets? trading on 1 June, immovable property as
 Where the income chargeable 2016, the average determined in the
to tax is declared in the form of of the lowest and
highest price of

4
Registered Valuer means a person
registered as a valuer under section 34AB
of the Wealth Tax Act, 1957
5
Quoted share or security in relation to
share or security means a share or
security quoted on any recognized stock
exchange with regularity from time to time,
where the quotations of such shares or
securities are based on current
transaction made in the ordinary course of
business.
6
‘Unquoted share and security’ in relation
to share or security means share or
security which is not a quoted share or
security.

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Tax Insights
manner provided in this
rule;
L= book value of liabilities,
but not including the
following amounts,
namely:-
(i) the paid-up capital in
respect of equity
shares;
(ii) the amount set apart
for payment of
dividends on
preference shares
and equity shares;
(iii) reserves and
surplus, by whatever
name called, even if
the resulting figure is
negative, other than
those set apart
towards
depreciation;
(iv) any amount
representing
provision for
taxation, other than
amount of income-
tax paid, if any, less
the amount of
income-tax claimed
as refund, if any, to
the extent of the
excess over the tax
payable with
reference to the book
profits in accordance
with the law
applicable thereto;
(v) any amount
representing
provisions made for
meeting liabilities,
other than
ascertained
liabilities;
(vi) any amount
representing
contingent liabilities
other than arrears of
dividends payable in
7
“Balance sheet” in relation to any the company appointed under the
company means the balance sheet of Companies Act, 2013 (18 of 2013) and
such company (including the notes where the balance sheet as on 31st day of
annexed thereto and forming part of the March, 2016 is not audited, the balance
accounts) as on 31st day of March, 2016, sheet (including the notes annexed
which has been audited by the auditor of thereto and forming part of the accounts)
PwC
respect of cumulative
preference shares;
PE= total amount of paid
up equity share capital
as shown in the balance
sheet7;
PV= the paid up value of
such equity shares;
C. Unquoted Shares and
securities (other than
equity shares in a
company)
Higher of -
a. its cost of acquisition;
and
b. the price that the
share or security
shall ordinarily fetch
if sold in the open
market on the 1st day
of June, 2016, , on
the basis of the
valuation report
obtained by the
declarant from a
registered valuer.
3. Interest of a person in a
partnership firm or in
an association of
persons (AOP) or a
limited liability
partnership (LLP) of
which he is a member
The net assets of the firm,
AOP or LLP on the 1st day of
June, 2016 shall first be
determined and the portion
of the net asset of the firm,
AOP or LLP as is equal to
the amount of its capital
shall be allocated among its
partners or members in the
proportion in which capital
has been contributed by
them and the residue of the
net asset shall be allocated
among the partners or
members in accordance
with the agreement of
partnership or association
or LLP for distribution of
assets in the event of
dissolution of the firm,
association or LLP, or, in
the absence of such
agreement, in the
proportion in which the
partners or members are
entitled to share profits and
the sum total of the amount
so allocated to a partner or
member shall be treated as
the value of the interest of
that partner or member in
the partnership or
association.
Net assets of the firm, AOP
or LLP for this purpose is
calculated as (𝐴+𝐵−𝐿),
determined in the manner
provided under ‘2. Shares
& securities’ above.
4. Any other asset
The valuation shall be
higher of
a. its cost of acquisition or
the amount invested; and
b. the price that the asset
would fetch if sold in the
open market on the 1st
day of June, 2016.
 Where investment in any asset
is partly from an income which
has been assessed to tax prior
to AY 2017-18, the FMV of the
asset as determined above shall
be reduced by an amount
which bears to the value of the
asset as on the 1st day of June,
2016, the same proportion as
the assessed income bears to
the total cost of the asset.
(also refer FAQ No. 4)
 The valuation report is
required to be obtained but the
same is not mandatorily
required to be filed along with
the declaration form. However,
while e-filing the declaration
which has been approved and adopted in
the annual general meeting of the
shareholders of the company
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Tax Insights
on the departmental website a
facility will be available. (refer
FAQ No. 14)
The takeaways
The Scheme indeed provides a
one-time opportunity to
declarants to come clean by
paying 45% (as tax, cess and
penalty) to the government. Any
suppression of facts and/ or
information may result in the
declaration being considered as
void. In that event, although the
declarant may not be subjected to
any penal consequences under
the Scheme, the information
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submitted may be used by the
revenue authorities for
assessment/ re-assessment of
income under the existing
provisions of the Act or/ and
Wealth-tax Act. Therefore,
declarants should be vigilant and
diligently make full and complete
disclosure in relation to their
undisclosed income or
undisclosed income in the form of
investment in any assets in India.
Let’s talk
For a deeper discussion of how
this issue might affect your
business, please contact:
Tax & Regulatory Services –
International Assignment
Services
Gautam Mehra, Mumbai
+91-22 6689 1154
gautam.mehra@in.pwc.com
Kuldip Kumar, Gurgaon
+91-124 616 9609
kuldip.kumar@in.pwc.com
Sundeep Agarwal, Mumbai
+91-22 6119 8438
sundeep.agarwal@in.pwc.com
Ravi Jain, Bangaloress
+91-80 4079 6024
ravi.jain@in.pwc.com
Page 5
Tax Insights

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