Cost of acquisition of asset, whose fair market value has been taken into account for the Income Declaration Scheme, 2016 [Section 49(5)]

Relevant from: A.Y.2017-18

(i) Income Declaration Scheme, 2016: Significant Features

(1) The Income Declaration Scheme, 2016 is contained in the Finance Act, 2016, which received the assent of the President on 14th May 2016. The Scheme provides an opportunity to persons who have paid not full taxes in the past to come forward and declare the undisclosed income and pay tax, surcharge and penalty totalling in all to 45% of such undisclosed income declared.

(2) A declaration under the aforesaid Scheme may be made in respect of any income or income in the form of investment in any asset located in India and acquired from income chargeable to tax under the Income-tax Act, 1961 for any assessment year prior to the assessment year 2017-18 for which the declarant had failed to furnish a return under section 139; or failed to disclose such income in a return furnished before the date of commencement of the Scheme or such income had escaped assessment by reason of the omission
or failure on the part of such person to make a return under the Income-tax Act or to disclose fully and truly all material facts necessary for the assessment or otherwise. Where the income chargeable to tax is declared in the form of investment in any asset, the fair market value of such asset as on 1st June, 2016 computed in accordance with Rule 3 of the Income Declaration Scheme Rules, 2016 shall be deemed to be the undisclosed income.

(3) The person making a declaration under the Scheme would be liable to pay tax at the rate of 30% of the value of such undisclosed income as increased by surcharge at the rate of 25% of such tax. In addition, he would also be liable to pay penalty at the rate of 25% of such tax. Therefore, the declarant would be liable to pay a total of 45% of the value of the undisclosed income declared by
him. This special rate of tax, surcharge and penalty specified in the Scheme will override any rate or rates specified under the provisions of the Income-tax Act or the annual Finance Acts.

(4) A declaration under the Scheme can be made anytime on or after 1st June, 2016 but before a date to be notified by the Central Government. The Central Government has notified 30th September, 2016 as the last date for making a declaration under the Scheme and 30th November, 2016 as the last date by which the tax, surcharge and penalty mentioned above shall be paid.

(ii) Cost of acquisition of an asset declared under Income Declaration Scheme, 2016

(1) Section 49 of the Income-tax Act, 1961 provides for determination of cost with reference to certain modes of acquisition.

(2) Sub-section (5) has been inserted with effect from A.Y.2017-18 to provide that where capital gain arises from the transfer of asset declared under the Income Declaration Scheme, 2016 and the tax, surcharge and penalty have been paid in accordance with the provisions of the Scheme on the fair market value of the asset as on the date of commencement of the Scheme, the cost of acquisition of the asset shall be deemed to be the fair market value of the asset which has been taken into account for the purposes of the said scheme.