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Voluntary Disclosure Scheme

GoI's Voluntary Disclosure Scheme

Government of India, The Central Board of Direct Taxes launched on June 18, 1997 the Voluntary Disclosure of Income Scheme (VDIS) which provides income-tax defaulters an opportunity to disclose their income at the prevailing tax rates under the umbrella protection of immunity from major laws relating to economic offences.

Those opting for the VDIS would be granted immunity from prosecution under the Foreign Exchange Regulation Act, 1973, the Income Tax Act, 1961, the Wealth Tax Act, 1957, and the Companies Act, 1956.

The scheme, which comes into force from July 1, 1997, will close on December 31, 1997. Those eligible under the scheme include persons who have failed to furnish I-T returns for any year or those who have part-disclosed their income in returns or have completely escaped assessment.

We give below the memorandum issued by the Government of India explaining provisions of VDIS and the complete Text of the VDIS, 1997.

GOVERNMENT OF INDIA'S VOLUNTARILY DISCLOSED SCHEME

Memorandum explaining provisions of VDIS

In order to mobilise resources and to channelise funds into priority sectors of the economy and to offer an opportunity to persons who have evaded tax in the past, to declare their undisclosed income, pay a reasonable tax and in future adopt the path of rectitude and civic responsibility, a voluntary disclosure of income and wealth scheme is proposed to be introduced. The scheme shall have the following salient features:

  1. The scheme will cover all persons, corporate or non-corporate. The tax payable on the disclosed income will be 30% in the case of individuals and 35% in the case of other declarants, viz, corporates and firms. The tax on the voluntarily disclosed income or wealth would have to be paid before making the declaration, and proof of such payment must be attached along with the declaration. However, where tax is paid within three months of the filling of the declaration, interest two per cent for every month or part of a month will become chargeable. If such tax is not paid within three months of filing the declaration, it will be deemed to be void.
  2. The person making a disclosure would have to file a declaration in a prescribed form before the Commissioner of I-T. The Commissioner shall, on an application made by the declarant, grant a certificate to him setting forth the particulars of the voluntarily disclosed income and the amount of I-T paid in respect of the same. A person may make a declaration in respect of any income chargeable to tax for any assessment year prior to the assessment year 1998-99:
    1. for which he has failed to furnish a return under section 139 of the I-T Act.
    2. for which he has failed to disclose in a return of income furnished by him under the I-T Act before the date of commencement of the Act.
    3. which has escaped assessment in terms of section 147 as it stood prior to 1.4.1989 and thereafter.
  3. The amount of voluntarily disclosed income shall be allowed to be credited by the declarant in the books of account, if any maintained by him for any source of income or any other record. The credit so made should be intimated to the assessing officer. The voluntarily disclosed income will not be included in the total income of the declarant for the purpose of assessment for any year under the I-T Act. There will be no assessment proceeding in respect of the disclosed income and the tax liability in respect of such income will be finally settled on payment of the tax under the scheme, where the voluntarily disclosed income if represented by any cash, bullion, investment in shares of any other assets, wealth tax shall not be payable by the declarant in respect of such assets.
  4. All particulars contained in a declaration will be treated as confidential and no court or authority will be entitled to require any public servant or the declarant to produce before it any such declaration or part thereof or to give any evidence in this regard.

    Furthermore, nothing contained in any declaration shall be admissible in evidence against the declarant for the purposes of any proceeding relating to imposition of penalty of the purposes of prosecution under any of the following Acts:

    1. I-T Act, 1961.
    2. Wealth-tax Act, 1957
    3. FERA, 1973
    4. Companies Act, -1966.

    However, the immunities will not extend to offences under:

    1. Chapter IX or Chapter XVII of the Indian Penal Code ( 46 of 1860).
    2. The Narcotic Drugs & Psychotropic Substances Act, 1986 ( 61 of 1986).
    3. The Terrorists and Disruptive Activities ( Prevention) Act, 1987 (28 of 1987).
    4. The Prevention of Corruption Act, 1988 (490 of 1988), and
    5. for the purpose of enforcement of any civil liability.

    VDIS shall not apply to any person in respect of whom an order of detention has been made under the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974.

  5. A person in whose case a search under section 132 of the I-T Act has been initiated or where books of account, other documents or other assets have been requisitioned under section 132A will not be entitled to make a declaration in respect of the previous year in which the search was made or any earlier previous year. Disclosure by such persons would, however, be allowed in respect of any previous year following the previous year in which the search was carried out. Further, in cases where a survey under section 133A has been carried out, no declaration of income or wealth will be allowed in respect of the previous year in which such survey was made.

    Persons who have been served with a notice under section 142(1) or section 148 of the I-T Act and where the return has not been furnished before the commencement of the proposed Act will also be barred from making a disclosure in respect of the previous year relevant to the assessment year for which the notice has been served.

  6. The conditions for the voluntary declaration of wealth will largely be along the above lines.

Text of VDIS, 1997

This scheme shall come into force on such date as the Central Government may, by notification in the official Gazette, appoint and shall remain in force upto December 31. In this scheme, unless the context otherwise requires 'declarant' means a persons making the declaration under sub- section (I) of section 64 of the scheme. (declared the VDIS scheme will come into force from July 1, 1997)

Charge of tax on voluntarily disclosed income

  1. Subject to the provisions of this scheme, where any persons makes on or after the date of commencement of this scheme but on or before the December 31, 1997, a declaration in accordance with the provisions of section 65 in respect of any income chargeable to tax under the Income-tax Act for any assessment year:
    1. for which he has failed to furnish a return under section 139 of the Income-tax Act;
    2. which he has failed to disclose in a return of income furnished by him under the I-T Act before the date of commencement of this scheme;
    3. which has escaped assessment by reason of the commission or failure on the part of such person to make a return under the I-T Act or to disclose fully and truly all material facts necessary for his assessment or otherwise then, notwithstanding anything contained in the l-T Act or in any Finance Act, I-T shall be charged in respect of the income so declared (such income being hereafter referred to as voluntarily disclosed income) at the rates specified here under, namely:
      1. in the case of a declarant, being a company or a firm, 35 per cent of the voluntarily disclosed income;
      2. in the case of declarant being a person other than a company or a firm, 30 per cent of the voluntarily disclosed income.
  2. Nothing contained in sub-section (I) shall apply in relation to:
    1. the income assessable for any assessment year for which a notice under sec 142 or 148 of the I-T Act has been served upon such person and the return has not been furnished before the commencement of VDIS;
    2. the income in respect of the previous year in which a search under section 132 of the l-T Act was initiated or requisition under section 132A of the Act was made, or survey under section 133A of the Act was carried out or in respect of any earlier previous year.

 

Particular to be furnished in declaration

  1. A declaration under sub-sec (1) of sec 64 shall be made to the commissioner and shall be in such form and verified in such manner as may be prescribed.
  2. The declaration shall be signed:
    1. where the declarant is an individual, by the individual himself; where such individual is absent from India, by the individual concerned or by some person duly authorised by him in this behalf: and where the individual is mentally incapacited from attending to his affairs, by his guardian or by any other person competent to act on his behalf;
    2. where the declarant is a Hindu undivided family, by the karta, and where the karta is absent from India or is mentally incapacitated from attending to his affairs, by any other adult member of such family;
    3. where the declarant is a company, by the managing director thereof, or where for any unavoidable reasons such managing director is not able to sign the declaration or where there is no managing director, by any director thereof;
    4. where the declarant is a firm, by the managing partner thereof, or where for any unavoidable reason such managing partner is not able to sign the declaration, or where there is no managing partner as such, by any partner thereof, not being a minor:
    5. where the declarant is any other association, by any member or the principal officer thereof; and,
    6. where the declarant is any other persons, by the person or by some other competent to act on his behalf.
  3. Any persons, who has made a declaration under subsection (I) of section 64 in respect of his income or as a representative assessee in respect of the income of any other person, shall not be entitled to make nay other declaration under that sub-section in respect of his income or the income of such other person, and any such other declaration, if made, shall be deemed to be void.

Time for payment of tax.

The tax payable under this scheme in respect of the voluntarily disclosed income shall be paid by the declarant and the declaration shall be accompanied by proof of payment of such tax.

Interest payable by declarant

  1. Notwithstanding anything contained in section 66, the declarant may like a declaration without paying the tax under that section and the declarant may file the declaration and the declarant may pay the tax within three months from the date of filing of the declaration with simple interest at the rate of two per cent for every month or part of a month comprised in the period beginning from the date of filing the declaration and ending on the date of payment of such tax and file the proof of such payment within the said period of three months.
  2. If the declarant fails to pay the tax in respect of the voluntarily disclosed income before the expiry of three months after filing the declaration, the declaration filed by him shall be deemed never to have been made.

Voluntarily disclosed income not to be included in the total income

  1. The amount of the voluntarily disclosed income shall not be included in the total income of the declarant for any assessment year under the I-T Act, if the following conditions are fulfilled, namely:
    1. the declarant credits such amount in the books of account, if any, maintained by him for any source of income or in any other record, and intimates the credit so made to the Assessing officer, and
    2. the I-T in respect of the voluntarily disclosed income is paid by the declarant within the time specified in section 66 or 67.
  2. The commissioner shall, on an application made by the declarant, grant and certificate to the setting for that particulars of the voluntarily disclosed income and the amount of I-T paid in respect of the same.

Voluntarily disclosed income not to affect finality of complete assessments etc.

The declarant shall not be entitled, in respect of the voluntarily disclosed income or any amount of tax paid thereon, to reopen any assessment or reassessment made under the I-T Act or the Wealth-tax Act or claim any set off or relief in any appeal, reference or other proceeding in relation to any such assessment or reassessment.

Tax in respect of voluntarily disclosed income or wealth not refundable

Any amount of tax paid in pursuance of a declaration made under sub-section (1) of sec 64 shall not be refundable under any circumstances.

Declaration not admissible in evidence against declarant.

Notwithstanding anything contained in any other law for the time being in force, nothing contained in any declaration made under sub-sec (1) of sec 64 shall be admissible in evidence against the declarant for the purpose of any proceeding relating to imposition of penalty or for the purposes of prosecution under the I-T Act or the Wealth tax Act or the Foreign Exchange Regulation Act, 1973 (46 of 1973 or the Companies Act, 1956 ( 1 to 1956).

Secrecy of declaration

  1. All particulars contained in a declaration made under sub-section (I) of section 64 shall be treated as confidential and, not withstanding anything contained in any law for the time being in force, no court or any other authority shall be entitled to require any public servant or the declarant to produce before it any such declaration or any part thereof or to give any evidence before it in respect thereof .
  2. No pubic servant shall disclose any particulars contained in any such declaration except to any officer employed in the execution of the I-T Act or the Wealth-tax Act, or to any officer appointed by the Comptroller and Auditor-General of India or the Board to audit I-T receipts or refunds.

Exemption from wealth-tax in respect of assets specified in declaration

  1. Where the voluntarily disclosed income is represented by cash (including bank deposits), bullion, investment in shares, debts due from other persons, commodities or any other assets specified in the declaration made under sub-section (I) of Section 64.
    1. in respect of which the declarant has failed to furnish a return under section 14 of the Wealth-tax Act for the assessment year commencing on the 1st day of April, 1997 or any earlier assessment year or years, or
    2. which have not been shown in the return of net wealth furnished by him for the said assessment year or years, or
    3. which have been understated value in the return of net wealth furnished by him for the said assessment year or years, then notwithstanding anything contained in the Wealth- tax Act or any rules made there under:
      1. wealth-tax shall not be payable by the declarant in respect of the assets referred to in clause (a) or clause (b) and such assets shall not be included in his net wealth for the said assessment year or years;
      2. the amount by which the value of the assets referred to in clause (c) has been understated in the return of the net wealth for the said assessment year or years, to the extent such amount does not exceed the voluntarily disclosed income utilised for acquiring such assets, shall be taken into account in computing the net wealth of the declaration for the said assessment year or years.
      3. the value of the jewellery or bullion so declared shall be taken to be its market value as on April 1, 1987, where the disclosure is made in respect of an assessment year earlier than assessment year 1987-88 and for the purposes of this chapter the expression " jewellery" shall have the same meaning assigned to it in explanation 1 to clause (viii) of sub-section (1) of section 5 of the Wealth-tax Act.

      Explanation. Where a declaration under sub-section (1) of section 64 is made by a firm, the assets referred to in clause (i) or, as the case may be, the amount referred to in clause (ii) shall not be taken into account in computing the net wealth of any partner of the firm or, as the case may be, in determining the value of the interest of any partner in the firm.

  2. The provisions of sub-section (I) shall not apply unless the conditions specified in sub section (1) of section 68 are fulfilled by the declarant.

Applicability of certain provisions of I-T Act and of Chapter V of Wealth-tax Act

The provisions of chapter XV of the I-T Act relating to liability in special cases and of section 189 of that act or of chapter V of the Wealth- tax Act relating to liability to assessment in special cases shall, so far as may be, apply in relation to proceeding under this Scheme as they apply in relation to proceeding under the I-T Act or, as the case may be, the Wealth-tax Act.

Removal of doubts

For the removal of doubts, it is hereby declared that, save as otherwise expressly provided in the explanation to sub-section (I) of section 73, nothing contained in this Scheme shall be construed as conferring any benefit, concession or immunity on any person other than the person making the declaration under this scheme.

Power to remove difficulties

  1. If any difficulty arises in giving effect to the provision of this scheme, the Centre may, by order, not inconsistent with the provision of this scheme, remove the difficulty. Provided that no such order shall be made after the expiry of a period of two years from the date on which the provisions of this scheme come into force.
  2. Every order made under this section shall, as soon as may be after it is made, be laid before each House of Parliament.

Power to make rules

  1. The Board may by notification in the Official Gazette, make rules for carrying out the provisions of this scheme.
  2. Without prejudice to the generality of the foregoing power, such rules may provide for the form in which a declaration may be made under sub- section (1) of section 64 and the manner in which these may be verified.
  3. The government shall cause every rule made under this scheme to be laid as soon as may be after it is made before each House of Parliament while it is in session for a total period of thirty days which may be comprised in one session - or in two or more successive sessions and if, before the expiry of the session immediately following the session or the successive sessions aforesaid, both House agree in making any modification in the rule or both Houses agree that the rule should not be made, the rule shall thereafter have effect only in such modified form or be of no effect, as the case may be; so, however, that any such modification or annulment shall be without prejudice to the validity of anything previously done under that rule.

Scheme not to apply to certain persons

The provisions of this scheme shall not apply:

  1. to any persons in respect of whom an order of detention has been made under the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 (52 of 1974):

    Provided that:

    1. such order of detention, being an order to which the provisions of section 9 or section 12a of the said Act do not apply, has not been revoked on the report of the Advisory Board under section 8 of the said Act or before the receipt of the report of the Advisory Board; or
    2. such order of detention, being an order to which the provisions of section 9 of the said Act apply, has not been revoked before the expiry of the time for, or on the basis of, the review under sub- section (3) of section, or on the report of the Advisory Board under section 8, read with sub-section (2) of section 9, of the said Act; or
    3. such order of detention, being an order to which the provisions of section 12a of the said Act apply, has not been revoked before the expiry of the time for, or on the basis of, the first review under sub-section (3) of that section, or on the basis of the report of the Advisory Board under section 8, read with sub-section (6) of section 12a, of the said act; or
    4. such order of detection has not been set aside by a court of competent jurisdiction;
  2. in relation to prosecution for any offence punishable under Chapter IX or Chapter XVII of the Indian Penal Code ( 45 of 1860), the Narcotic Drugs and Psychotropic Substances Act, 1985 (61 o9f 1985), the Terrorists and Disruptive Activities (Prevention) Act, 1987 ( 28 of 1987), the Prevention of Corruption Act, 1988 (49 of 1988) or for the purpose of enforcement of any civil liability;
  3. to any person notified under section 3 of the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992 ( 27 of 1992).

 
 

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