In a notification dated 17 August, the Central Board of Direct Taxes (CBDT) has amended the fair market value (FMV) determination rules for immovable property, as applicable to the Income Declaration Scheme (IDS) 2016. The notification provides the declarant an option to determine the FMV by inflating the cost of acquisition based on the cost inflation index (CII).

Earlier, the declarants were required to determine the FMV of immovable property as higher of the cost of acquisition or the price that the property would ordinarily fetch if sold in the open market as on the valuation date, i.e., 1 June 2016. “Besides simplifying the declaration process, the new rules may result in bringing down the tax liability of the declarants,” said Kuldip Kumar, partner and leader, personal tax, PwC. Here is what the scheme is all about, and the impact of amendment in the valuation rules.

The scheme

The income declaration scheme allows income tax assessees to declare any undeclared income of the past. The four-month window to avail the scheme started on 1 June this year and will remain open till 30 September. The scheme was started to enable tax evaders to disclose their undeclared income and assets, and come clean by paying the applicable tax, cess and penalty that would amount to 45% of the undisclosed income. This will help them regularise their wealth. IDS is also for those who may have unknowingly not paid or missed paying tax on certain incomes earned earlier.

Under IDS, an assessee can voluntarily declare her undisclosed income and also the assets acquired through such undeclared income. A separate form, Form 1 under section 183 of the Finance Act, 2016, has been published for this purpose. Using it, you can disclose the income as well as any asset acquired using this undisclosed income. Upon declaration, the assessee will get immunity from further penalties or prosecution proceedings under the Income-tax Act, 1961, and the Wealth-tax Act, 1957, relating to these incomes and assets.

Santosh Sharma/Mint
Click here for enlarge
Declaration rules

Where the undisclosed income is easily accessible, one can simply state the amount of the income. However, if assets were acquired using this income, then one has to disclose the FMV of the assets as on 1 June 2016. The department has issued different sets of rules to evaluate the FMV of each asset class. The tax has to be paid based on the declared value of the assets.

Securities: For instance, in case of financial assets such as shares and securities, the assets’ value for the purpose of calculating the tax will be higher of these two costs: the cost of acquisition or the FMV, which is the average of the lowest and highest price quoted on any established securities market on 1 June 2016.

So, if a security was bought for Rs.250, but on 1 June its highest and lowest price was Rs.220 and Rs.200, respectively (average of Rs.210), then the FMV will be taken as Rs.250.

On the other hand, for assets such as bullion, jewellery or precious stones; the taxable value is either the cost of acquisition or the price that these assets will fetch if sold in the open market on 1 June 2016, whichever is higher.

Immovable assets: Earlier, the same process—as applied to bullion—was applied to immovable assets like houses, buildings or plots. However, with amendments in the rules of valuation, the declarants can take advantage of the CII to determine the FMV of the immovable assets. But this is only allowed if the immovable property is duly registered. The notification states that “provided that where the acquisition of immovable property by the declarant is evidenced by a deed registered with any authority of a state government, the FMV of such property shall, at the option of the declarant, may be taken on the stamp duty value as increased by the same proportion as CII for the year 2016-17 bears to CII for the year in which the property was registered”.

The amendment may result in bringing down the tax liability for declarants at the time of declaration. Say, a house was bought and registered in May 1990 for Rs.5 lakh, through an undisclosed income. Earlier, the FMV would have been calculated on the prevailing market value, which might have been Rs.75 lakh on 1 June 2016. The declarant would then have had to pay 45% tax on Rs.75 lakh, i.e., Rs.33.75 lakh. Now, she can declare the property to be valued at Rs.30.9 lakh (Rs.5 lakh * 1125 (CII for 2016-17)/182 (CII for 1990-91)). This will reduce her tax liability to Rs.13.9 lakh only (45% of Rs.30.9 lakh).

However, if the asset was acquired before April 1981 with undisclosed income, the person making the declaration will need to go to a valuer to determine the FMV of the assets, as on April 1981, and then avail the benefit of CII. “Provided further that where the immovable property was acquired before the 1st day of April, 1981, the provisions of the first proviso shall have effect as if for the words “stamp duty value”, the words “the FMV of the property as on 1st day of April, 1981 on the basis of the valuation report obtained by the declarant from a registered valuer,” the notification said.

The tax department has also issued a list of valuers for each type of asset who can issue certified valuation reports. The valuers’ licences, and the fees and other charges that they can charge are prescribed under the wealth-tax Act.

Filing the declaration

The declarants who wish to file returns under IDS, can file it online or offline. To file the online declaration, login to your tax-filing account on the tax department’s website (https://incometaxindiaefiling.gov.in ). Under the e-file tab, click the option, ‘Upload Form 1 (Income Declaration Scheme, 2016)’, and you will be directed to the page where you can upload the required forms and also the valuers’ reports. The online process, however, is available only for those who have a valid digital signature. Others will have to submit the form offline.

The new rules also provide that those who have already filed a return under IDS, can revised their returns. “CBDT has amended the Form 1 (IDS Form) to file revised returns under the scheme. In case of revised return, the declarant has to mention the receipt number, date of filing the original Form-1 and the reason for filing the revised Form 1,” said Amit Maheshwai, partner, Ashok Maheshwary & Associates LLP.

Once a declaration is received, the designated officer shall issue the acknowledgement within 30 days, from the end of the month in which such declaration was made. On receipt of the acknowledgment, if it states that your declaration is accepted, the next step is to pay the due tax. While the income declaration window will remain open till 30 September, tax on such income can be paid in instalments up to 30 September 2017.