Voluntary Disclosure of Income

Voluntary disclosure of income is when a taxpayer willingly reports previously undisclosed or unreported income to the tax authorities. Such disclosures are often incentivized by the government through reduced penalties, immunity from prosecution, or interest relief, encouraging taxpayers to come forward and comply with tax laws. This mechanism helps reduce tax evasion and improves transparency in the tax system.

Example: An individual had earned ₹20 lakh from freelance work in previous years but did not report it in their income tax returns. By opting for a voluntary disclosure scheme, they report the income and pay the tax due along with a nominal penalty, avoiding harsher fines or legal proceedings.