Written on : July 21st 1997

Violating tax laws normally attracts severe penal action. You are charged with interest and penalties of various kinds. The penal action could be much more onerous than the tax laws that you have violated. This is as it should be.

However, VDIS offers attractive immunities if you have made a declaration. Let us understand the immunities that you get as a result of a declaration.

If you fail to pay tax on your income as required by law, there is an automatic interest that you pay on the tax not paid - at the rate of 2% per month for the period of delay. This works out to 24% per annum, simple.

If you do not file a return due by you, there is another interest at 2% per month on the tax for the period of delay.

All this results in interest at the rate of 24% to 48% for every year of delay, depending on whether the return was filed or not. The interest burden, as you know, can be quite high – much higher than the tax payable.

If you now file a declaration under VDIS, you are exempt from paying any interest on the default you committed. This could be a saving worth a few times more than the tax not paid by you. Immunity from interest is the biggest and most immediate benefit that VDIS offers you.

If you have concealed your income and not paid tax law will penalise you, of course. The penalty for concealing your income is not less 100% of the tax avoided and can be as high as 300% of the tax avoided. That is, if the tax is a lakh of rupees, you pay penalty of not less than a lakh and upto three lakh rupees.

Of course, VDIS also gives you immunity from this penalty if you make a declaration. Another real saving.

Then there are other penalties also that may be attracted. For instance, failure to get tax audit done can attract penalty of upto a lakh of rupees. Failure to maintain books and records will also attract a penalty. You get immunity from these penalties too, under VDIS.

Not only do you attract concealment penalty, you are also liable to be prosecuted for not disclosing your real income. Prosecution is quite often a reality and a jail term a possibility.

Again, VDIS gives you immunity from prosecution if you make a declaration. A big benefit, that too

If your is a company which has not disclosed income properly and make a declaration you also get immunity under company law.

VDIS allows you to declare assets lying abroad on which you were liable to pay Indian income tax but have failed to do so. This obviously means you are a resident, have violated FERA and tax laws. If you make a declaration under VDIS and pay taxes, you get immunity from penalties and prosecution under FERA also. Not just that, the government has also relaxed some regulations allowing you to maintain some properties or assets abroad out of the declared amounts.

While you get immunity from all the penalties and prosecution proceedings under various laws as described above, you do not get any immunity from state laws like sales tax, stamp duty, registration etc. This should be remembered when you make declarations but only to ensure that your declarations and entries in the books are carefully made so that you do not attract penal action under these laws.

What is the meaning and value of the immunities? Or, why immunities at all? The answers to these questions lie in this question: Is VDIS a mere money laundering scheme? Is it just to help you convert your unaccounted money into accounted and bring them into the books?

The answer is: No. If converting unaccounted into accounted money at a low rate of tax was the sole objective, you can simply declare higher amounts during the current year and hereafter, pay taxes at 30%. Why VDIS for merely declaring incomes and paying taxes at 30%?

The Scheme actually goes beyond allowing conversion of black into white money. It allows you to correct errors committed by you in the past while disclosing your actual undisclosed income and paying tax at a rate lower than what you would have paid then. If you now correct your errors and pay taxes under VDIS, all penal action that you could have attracted are waived.

It is always possible that your past assessments may be reopened any time. This could happen for many different reasons. If these assessments are reopened and during reassessment your tax officer finds that you had not disclosed your income properly you will pay heavy penalties and interest.

If before the reassessment you make a declaration under VDIS for the amount the officer later may find undisclosed, the immunities will be of immense help. You can simply show the Certificate issued by the Commissioner on your declaration and ask the officer to keep his hands off! That is the value of the immunities - you get vaccinated against penal action for past errors. The Scheme is, therefore, not a mere money laundering scheme and is more than that.

Do keep this in mind when you decide and plan your declarations