MUMBAI: Many rich people, who plan to disclose their undeclared holdings of stocks as well as real estate and gold under the income declaration scheme to buy peace with the tax authorities, are likely to continue holding those assets at least for some more time.
This is because they expect the 45% tax and penalty that they need to pay under the government scheme to pinch less if they hold the assets for at least a year or so, said tax consultants dealing with them.
Under IDS, when an assessee discloses an asset acquired out of undisclosed income, its value as on June 1, 2016 will be used to determine the tax and penalty, irrespective of the value at the time of its acquisition, said a tax official. But the government has not clarified how long such assets could be held by the taxpayer after the tax is paid under IDS. That gives some leeway.
Value of at least some of these assets — mainly gold and stocks — was low around June, but have increased since and is expected to go up from here on, said the people media spoke to. So, the hope is that the effective tax would turn out to be less than 45% if the value of the assets at a later stage is taken into account.
For example, if the value of shares held by an individual was around Rs 1 crore in June, the tax would be Rs 45 lakh under IDS. If the he pays tax now but holds on to the shares for some time and sell them when the value is Rs 1.5 crore, his tax outgo will still be Rs 45 lakh, that is just 30% of the sale value.
And this may not be illegal, as the government has not come out with any regulations around this. “A tax payer can declare assets and pay the taxes on those at 45% and can choose to sell these assets at a later stage. However, the revenue department has not clarified what would be period of holding of such asset,” said Paras Savla, partner at tax consultancy KPB & Associates.
The revenue department and Central Board of Direct Taxes didn’t respond to an email seeking comment. This happens at a time when the income tax department has started issuing notices to those who earned money via trading in penny stocks.
ET had on July 29 written how the income tax department is planning to issue notices to about 1,000 individuals who have made earned money through penny stocks and not declared that. “The income tax department in last seven days has started issuing notices to people who have traded in penny stocks. This could continue for next couple of weeks,” said a person in the know of the matter. ET could not independently verify the total number of notices issued by the revenue department.
The tax notices are sent based on an analysis done by the revenue department and the Central Board of Direct Taxes earlier this year of transactions in penny stocks on the country’s bourses. The analysis was based on data obtained through market regulator Securities and Exchange Board of India and from some investigation agencies like the Investigation Directorate and Enforcement Directorate.
Credits ET Realty