Black money declarants cannot pay tax from undeclared income

If a person declares Rs 100 lakh as undisclosed income. As on June 1, 2016, but pays tax, surcharge and penalty of Rs 45 lakh (30 lakh + 7.5 lakh + 7.5 lakh) on same out of his other undisclosed incom

The government on Thursday clarified that black money declarants using the one-time compliance window cannot pay tax and penalty from undisclosed income to bring down their liability and such acts will not get any immunity.

The Income Tax Department today came out with a fourth set of clarifications on the Income Declaration Scheme (IDS) on queries seeking to know if payment under the Scheme can be made out of the undisclosed income without including the same in the income declared, which would bring down the effective rate of tax, surcharge and penalty payable to around 31% from 45%.

The clarification in the form of frequently asked questions (FAQs) stated that there is no intent to "modify or alter the rate of tax, surcharge and penalty payable under the Scheme which have been clearly specified in the Scheme itself".

It said further "Sections 184 & 185 of the Finance Act, 2016 unambiguously provide for payment of tax, surcharge and penalty at the rate of 45 per cent of undisclosed income".

It offered an illustration: A person declares Rs 100 lakh as the undisclosed income. As on June 1, 2016, but pays tax, surcharge and penalty of Rs 45 lakh (30 lakh + 7.5 lakh + 7.5 lakh) on the same out of his other undisclosed income.

"In this case, the declarant will not get any immunity under the Scheme in respect of undisclosed income of Rs 45 lakh utilised for payment of tax, surcharge and penalty, but not included in the declaration filed under the Scheme," it added.

To get immunity under the Scheme in respect of the entire undisclosed income of Rs 145 lakh in this case (Rs 100 lakh undisclosed income being declared and Rs 45 lakh being the payment made from the undisclosed income not declared), one has to pay tax, surcharge and penalty amounting to Rs 65.25 lakh, that is 45% of Rs 145 lakh.

A four-month window starting from June 1 has been provided to persons holding undeclared income and assets to come clean by paying a tax of 30% and interest and penalty of another 7.5% each, totaling 45%. The window ends on September 30.