Introduction:-

What is Penalty?

A punitive measure that the law imposes for the performance of the act that is prescribed or for the failure to perform a required act.

Penalty is a comprehensive term with many different meanings. It entrails the concept of punishment- either corporal or pecuniary, civil or criminal.

Penalties by way of monetary payments are charged under the Income Tax act for various defaults relating to payment of taxes, maintenance of accounts, for non compliance and non co-operation during proceedings, for evasion of taxes.

Broadly, these can be grouped as:-

      Failure to file return of income
      Failure to pay advance tax, tds and self assessment tax.
      Failure to deduct tax at source.
      Failure in disclosing true income i.e undisclosed income for which government may levy penalty called as Penalty on undisclosed income.

             What is undisclosed income?

            First of all, we have to understand the meaning of the term, undisclosed income or concealment of income. The meaning of the word “conceal” is to keep secret, to keep it under wraps. In law, undisclosed income is intentional suppression of truth or facts to the injury or prejudice of another.

          Penalty on undisclosed income:-

       The finance Bill 2016 proposes to make radical changes to the law relating to levy of penalty for concealment of income and furnishing of inaccurate particulars.Here, we are mainly concerned with the issue of levy of penalty in cases where tax evasion is established. The relevant penalty provisions are contained in section 271(1)( c ) of the Income Tax act 1961. According to this section, if a person is found to have concealed particulars of income or furnished inaccurate particulars of income, it would invite levy of penalty, which
Would range from 100% to 300% of tax sought to be evaded through the act of concealment of income.

Exclusions of certain amounts from scope:-

Such exclusions are narrated below:-
      The additions or disallowances in respect of which assessee offers a bona fide explanation to the satisfaction of the tax authority.
      The additions or disallowances determined on estimates basis, if the accounts maintained by assessee are correct and complete to the satisfaction of tax authority but method employed is such that the income cannot properly be deducted there from.
      The amount of undisclosed income referred to in section 271AAB.
 
Black Money and Imposition of Tax Act, 2015

Several governments have introduced ‘Amnesty schemes’ over the last few years to give a chance for black income holders to come clean by paying a penalty. The measures was a preparatory one as the world is now moving an Automatic Exchange of Information era where governments can automatically avail information about domestic residents income and assets stored in foreign countries. So to give a chance to residents to reveal their income and assets abroad, the government of India introduced an Act that gives a one time opportunity to reveal income and assets in their countries.
The Act known as the “Black Money and Imposition of Tax Act, 2015 became effective from July 1,2015 with the starting of the income-time compliance window.
 
Features of the Act

•  The Act will be applicable to a person;-

• Who is a tax resident as per the tests of the Income Tax Act,1961.
• Who is not a person who is resident but not ordinarily resident.
• By whom tax is payable under the UFIA Bill on undisclosed foreign income and assets or any other sum of money.

• One-time compliance window:-

• A one- time compliance opportunity to persons who discloses their foreign income and assets will be provided.
• This compliance period was available from July 1 to sept 30^th.
• Persons who use this compliance window will be permitted to file a declaration and pay tax rate 30% and a penalty at the rate of 100% and implying total of 60%.

•  Income and assets that qualify the disclosure:-

• Income from a source located outside India, which has not been disclosed in the tax returns filed.
• Income from a source outside India for which no tax returns has been filed.
• Value of an undisclosed asset located outside India

• Non-disclosure, penalties and prosecution:-

• Not furnishing income tax returns for foreign income and assets and providing misleading information for such foreign income and assets attracts a penalty of 10 lakh
• Criminal punishment attracts rigorous imprisonment from 3 years to 10 years and fine.

 
 
 
 
Income declaration Scheme:-
 The scheme provided 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 45% of such undisclosed income declared. The advantage of the scheme was that once an assessee declares income under this, that person got immunity from penalty and prosecution proceedings under the Income Tax Act,1961 and Wealth- Tax Act,1957. The declaration under the Scheme can be made on or after the date of commencement of this Scheme but before a date to be notified by the central government u/s 183(1) can be made till 30-09-2016.   Declaration can be made only against income chargeable to tax under Income Tax Act.

Who Can Make a Declaration under Income Declaration Scheme?

All ‘persons’, such as individuals, HUFs, companies, firms, association of persons (AOP) etc., were eligible to made declaration under the Scheme. A taxpayer who is involved in litigation or proceedings under the income-tax Act or any other Act (specified under the scheme) cannot adopt for disclosure under this scheme.

Scope & Coverage of Income Declaration Scheme

• Declaration can be filed by declarant for Income:
  • for which he has failed to furnish a return under section 139 of the Income-tax Act;
  • which he has failed to disclose in a return of income furnished by him under the Income-tax Act before the date of commencement of this Scheme;

   which has escaped assessment by reason of the omission or failure on the part of such person to furnish a return under the Income-tax Act

   Income Declaration Scheme does not apply if

• Notice has been issued under section 142(1)/143(2)/148/153A/153C

of I.T Act,1961.

• Search/survey has been conducted
• Income sought to be declared is chargeable under the Black Money Act,2015.

   Amounts payable under IDS;-

• Tax @ 30% of undisclosed income
• Surcharge @ 7.5% of undisclosed income.
• Penalty @ 7.5% of undisclosed income

Total @ 45% of undisclosed income declared.

      Manner of declaration.

• A declaration under section 183 shall be made to the Principal Commissioner or the Commissioner and shall be in such form and manner, as may be prescribed.
• The declaration shall be signed,—

   Benefits of Declaration under Income Declaration Scheme

• No Wealth Tax on assets declared
• No scrutiny or enquiry under Income-tax Act and Wealth—tax Act in respect of declaration
• Immunity from prosecution under Income-tax Act and Wealth -tax Act in respect of declaration
• Immunity from Benami Transactions (Prohibition) Act