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In the previous article, we saw who can make a disclosure under the Scheme. More on this from the clarifications.
One of the clarifications deals with minor’s income. If one of your minor children’s income has remained undisclosed, how can you make a declaration of that? Till assessment year 1991-92, a minor was required to file his own return (albeit through you as parent) but thereafter his income is clubbed with yours.
As such, if the minor’s income before assessment year 1992-92 has remained undisclosed, you should file a declaration on his behalf. But, later income should be declared by you as your income.
If a firm or company has undisclosed income, it is the firm or company who should file a declaration and not the partners or directors. But the partners or directors will sign the declaration on behalf of the firm or company.
While you have a right to file a declaration, you can only file one declaration and no more. You cannot file a declaration in July and then another one in December before the Scheme closes. That is not permitted.
You would, therefore, be well advised to examine all your accounts, documents and assets and make a full list of items requiring disclosure - you won’t have a second chance to make a declaration whether you have made a mistake or your officer has started asking questions and he puts you in a tight spot. Equally, it is not possible for you to rectify a declaration once filed. What is filed is final.
It is also, therefore, best to make a correct and complete disclosure of undisclosed incomes to avoid problems.
Of course, if you represent more than one taxpayer you can file separate declarations - one for each of them. Like, for instance, you may represent a minor child, a HUF, a trust etc. Each such taxpayer will, of course, be entitled to file only one declaration.
The one declaration that you file can cover undisclosed income of several years - not necessarily one year. It means, you can come clean of all undisclosed income - of all years
You will, of course, want to declare your undisclosed income. What is this undisclosed income? The Scheme explains this as income:
- for which you have failed to file a return of income which you were required to file;
- which you have failed to disclose in the return filed by you before the Scheme starts.
- which has escaped assessment because of your omission or failure to make a return or disclose fully and truly all facts for an assessment.
So:
- if you find that you have failed, for any past year, to file a return and pay taxes, this is your chance to make good the error;
- if you have filed a return but have not included in it some income, you can disclose it.
- if you have not disclosed fully and truly all facts and it has resulted in your having undisclosed income - you can do so now.
Let me give some examples to explain.
Salaried taxpayer are required to file returns not only showing their salary incomes, but also various other items of incomes like dividends, bank interest, house rent, NSS withdrawals etc. Many do not file returns assuming that TDS on salaries would take care of all this. The department had become quite active on some of these issues in the last year. For instance, the department collected information from banks and questioned many taxpayers about NSS withdrawals not being shown in their returns. This led to considerable anxiety. Such taxpayers can take advantage of VDIS and escape the likely questioning by the department.
Taxpayers put up claims for expenses, allowances or deductions which they may not be entitled to. Such claims can be foregone and a declaration made now.
There has been a controversy that legal pundits were involved in. The issue is whether you can file a declaration with regard to returns which you have not filed , but which you can still file as the time limit has not expired.
For instance, you have not filed your returns for assessment year 1996-97. Now that the VDISis being offered, you want to take advantage of it and come clean, pay the tax but save interest and penal consequences.
Now, under the law you can still file the return for assessment years 1996-97.
Can it then be said that you have failed to file the return for the year? If so, you are prohibited from making the declarations.
Since accountants and lawyers are arguing over it, the matter is certainly not free from doubt. And you want to remain safe and avoid litigation.
One solution, if you wish to take advantage of VDIS, is to file a nominal return for the assessment year 1996-97 before June 30. That is, you may file a return of income before June 30. However, if you have not filed the return then you should logically return the correct income in the return and file it.
If you are an unfortunate person to be searched by the department, you are prohibited from making a declaration for the year in which search was carried on, and for all earlier years.
Thus, if the search took place on June 1,1993,you can file a declaration for the financial years 1994-95 and later years, but not earlier ones.
However, the prohibition exits only against persons who were subjected to the search, ie.in whose name the search warrant was executed. Other firms, companies and individuals in the group can make a declaration for earlier years also.
The scheme says that if a survey was carried on under Section 133 A, then for the year of survey and all previous years also no declarations is permissible. That is, survey cases are are clubbed with search cases by the scheme and treated alike. This is actually and obviously unjustified.
But that is how, unfortunately, the Scheme is drafted.
The Circulars, both of them, issued by the government however say that a declarations shall not be allowed to be made by a taxpayer only for the year in which the survey took place and not earlier years.
For example: a survey was conducted on June 1,1993. According to the literal and strict interpretation of the scheme, a declaration is permitted only for assessment years 1995-96 and thereafter and not any previous years.
But the circular says that the taxpayer cannot make a declaration only for assessment year 1994-95 and can make valid disclosures for all others years - prior and later.
The circulars are contrary to the Scheme and highlight the anomaly. Ideally what is required is an amendment to the scheme by way of an ordinance correcting this.
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