THE BLACK MONEY (UNDISCLOSED FOREIGN INCOME AND ASSETS) AND IMPOSITION OF TAX ACT, 2015

Introduced in Lok Sabha on 20.03.2015, passed by Rajya Sabha on 13.05.2015 and received the assent of President

on 26.05.2015

PRESENT LAW

4th proviso to sec. 139

A resident even if not required to file return but has any asset outside India or signing authority in an account out of India is required to file return

Sec. 149(1)(b)

Sec. 148 action upto sixteen years

BUDGET SPEECH

One of the policy direction of budget speech of FM was to take measures to curb black money. Para 100 to 104 of budget speech was devoted on this aspect. Consequence thereto, the present Act is made

APPLICABILITY AND OBJECT

APPLICABILITY

Applicable from 01.04.2016 (7 Chapters, 88 Sections)

OBJECTIVES

To tax undisclosed foreign income and assets acquired from undisclosed foreign income

To punish the persons indulging in illegitimate means of generating money causing loss to the revenue

To prevent illegitimate income and asset kept outside India from being utilized in ways which are detrimental to India’s social, economic and strategic interests and its national security

SALIENT FEATURES

Undisclosed foreign income and assets of an ordinary resident would be taxed under this Act and not under the normal provisions of IT Act, 1961.

No 16 year time-limit to tax foreign income/asset escaping assessment

Flat 30% tax on total undisclosed foreign income and asset (no surcharge or education cess)

No wealth tax. Interest as per sec. 40 of the Act

Penalty up to 3 times of tax computed

One-time limited window compliance scheme – levy of tax, lower penalty of upto 100% of tax computed and no prosecution

WHO IS LIABLE TO PAY TAX?

In case of an individual or HUF who are resident and ordinarily resident shall be liable to pay tax (‘Assessee’)

Meaning of ‘resident’ and ‘ordinarily resident’ shall be as per provisions of sec. 6 of IT Act

Assessee means a person by whom tax on Undisclosed foreign income and asset is payable and includes every person who is deemed to be an assessee-in-default under IT Act

WHAT IS UNDISCLOSED FOREIGN INCOME AND ASSET

Undisclosed foreign income and asset means

Foreign income which is not disclosed in the ROI furnished (original, revised or belated)

Foreign income in respect of which return is required to be furnished u/s 139 but no return has been furnished

value of an undisclosed foreign asset (FMV of the undisclosed foreign asset)

Undisclosed foreign asset It is an asset (including financial interest in any entity) located

outside India

Assessee may be owner or beneficial owner of such an asset

Assessee has no explanation about the source of investment in such asset or explanation given by him in the opinion of AO is unsatisfactory

Undisclosed foreign asset shall be charged to tax on its value in the P.Y. in which such asset comes to the notice of the AO

WHAT IS EXCLUDED FROM UNDISCLOSED FOREIGN INCOME

Any variation in foreign income during assessment or re-assessment under following provisions of IT Act shall not be included in undisclosed foreign income

Sec. 29 to 43C – Assessment of business profit

Sec. 57 to 59 – Assessment of income from other sources

Sec. 92C – Transfer pricing provisions

We can understand this from following examples

Example 1 – Assessee acquires a house property in a foreign country which is not disclosed in the ROI.

The FMV of such an asset shall be subject to tax under this Act. Any income earned from such property which is not offered to tax in ROI shall also be charged to tax under this Act

WHAT IS EXCLUDED FROM UNDISCLOSED FOREIGN INCOME

Example 2 – Assessee acquires a house property in a foreign country and discloses in the ROI. Any income earned from such property during the year is offered to tax in ROI.

In this case, nothing would be taxable under the Act. However, if assessee transfers the property during the year and suppresses the FVOC and during assessment, AO assesses the capital gain or income from house property at a higher sum, additional sum so assessed shall be chargeable to tax under this Act.

Example 3 – Assessee acquires a house property in a foreign country and discloses it in ROI.

In this case, nothing would be taxable under the Act. However, if assessee earns income from such property during the year but does not offer it to tax in the ROI, in this case, if AO assesses the income from house property, the sum so assessed shall be chargeable to tax under this Act

COMPUTATION MECHANISM

No deduction in respect of any expenditure or allowance or set off of any loss shall be allowed.

Any income which has been assessed to tax under IT Act shall be reduced from the value of undisclosed foreign asset if asset is acquired from such income

Proportionate income, which was assessed to tax, shall be reduced from FMV of foreign undisclosed asset being immovable property and remaining amount shall be taxable under the Act

Example = A house property located outside India acquired by the assessee in P.Y. 09-10 for = Rs. 50 lacs, Out of investment of Rs.50 lacs, 20 lacs was assessed to tax in total income of P.Y. 09-10 and earlier years. Such undisclosed asset comes to notice of AO in year 2017-18. If value of asset in year 17-18 is Rs. 1 crore, the amt. chargeable to tax is = Rs. 60 lacs [Rs.100 lacs – Rs.40 lacs (Rs.100 lacs*Rs.20 lacs/Rs.50 lacs)]

TAX AUTHORITIES

The income tax authorities specified in sec. 116 of the IT Act shall be the tax authorities for the purpose of this Act.

Tax authority in relation to an assessee who has no income assessable to income tax under the IT Act shall be the tax authority having jurisdiction in respect of the area in which the assessee resides or carries on its business or has its principal place of business

The prescribed tax authorities shall have the same powers as are vested in a Court under the Code of Civil Procedure, 1908.

For the purpose of making any inquiry or investigation, the prescribed tax authority shall be vested with the powers whether or not any proceedings are pending before it.

Any proceedings under the Act before a tax authority shall be deemed to be a judicial proceeding

Every tax authority shall be deemed to be a civil court

ASSESSMENT & APPEAL The AO on receipt of information from an IT authority under the IT Act or

any other authority under any law or on coming of any information to his notice, serve on any person, a notice requiring to produce such accounts or documents or evidence as he may require

No order of assessment or reassessment shall be made after expiry of 2 years from the end of F.Y. in which notice was issued by the AO.

The order passed may be amended by the tax authority so as to rectify any mistake apparent from record within a period of 4 years from the end of the F.Y. in which the order was passed.

Any sum payable in consequence of any order shall be demanded by the tax authority by serving upon the assessee a notice of demand

Direct assessment of person on whose behalf or for whose benefit the undisclosed income from a source located outside India is receivable or undisclosed asset located outside India is held or recovery from such person is not barred

Right of appeal has been protected by providing for appeals to CIT(A), ITAT, HC and SC

Notwithstanding any appeal preferred to the HC or SC, tax shall be paid in accordance with the assessment made under this Act

PENALTIES AND PROSECUTIONS

Nature of default Penalty Prosecution

Where tax has been computed in respect of undisclosed foreign income and asset [Sec. 41]

3 times of tax computed

-

Failure to furnish ROI before the end of the relevant A.Y. in relation to foreign income and asset [Sec. 42]

Rs. 10 lacs 6 months to 7 years and with fine

Failure to furnish any information or furnishing of inaccurate particulars relating to any asset located outside India or income from a source outside India in the return furnished [Sec. 43]

Rs. 10 lacs 6 months to 7 years and with fine

[No penalty u/s 42 & 43 shall be levied if any foreign asset, being one or more bank account have an aggregate balance which does not exceed Rs. 5 lacs at any time during the P.Y.]

Default by an assessee in making payment of tax and in case of continuing default by such assessee [Ne cessation of penalty merely by reason that before the levy of penalty assessee has paid the tax] [Sec. 44]

Amt. of tax arrear

Nature of default Penalty ProsecutionIf a person fails to:--Answer any question put to him by a tax authority- sign any statement which a tax authority may legally require him to sign- attend or produce books of accounts or documents [Sec. 45]

Rs. 50,000 to Rs. 2 lacs

Willful attempt by assessee to evade tax, penalty or interest chargeable or imposable under this Act [Sec. 51]

- 3 years to 10 years and fine

Willful attempt by person to evade tax, penalty or interest chargeable or imposable under this Act [Sec. 51]

- 3 months to 3 years and fine

If a person makes false statement in any verification under this Act or delivers false account or statement [Sec. 52]

- 6 months to 7 years and fine

If a person abets or induces another person to make and deliver an account or statement or declaration relating to tax payable under this Act which is false [Sec. 53]

- 6 months to 7 years and fine

If any person convicted of an offence is again convicted of an offence [Sec. 58]

- 3 years to 10 years and fine = Rs. 5 lacs to 1 crore

ONE TIME COMPLIANCE OPPORTUNITY

The Act provides for one time compliance opportunity during the specified period to persons who have any undisclosed foreign asset. However, the govt. has refused to call it as amnesty scheme as no immunity from penalty is offered (although lower penalty is charged) and only immunity from prosecution is offered.

Any person may make a declaration in respect of any undisclosed asset located outside India and acquired from income chargeable to tax under IT Act for any A.Y. prior to A.Y. 16-17

Tax @30% on value of such undisclosed asset as on the date of commencement of this Act shall be charged and penalty @100% of such tax would be levied.

Declaration to be made to Principal Commissioner or Commissioner in such form and verified in such manner as may be prescribed

Tax and penalty payable shall be paid on or before a date to be notified by CG.

If the declarant fails to pay the tax in respect of declaration, the declaration filed shall be deemed never to have been made.

ONE TIME COMPLIANCE OPPORTUNITYTax and penalty paid shall not be refundable

No interest u/s 234A, 234B and 234C of IT Act

Declaration by misrepresentation or suppression of fact shall be deemed as void-ab-initio

Declaration so filed shall not be considered as an evidence against declarant for initiating penalty or prosecution proceedings under the IT Act, WT Act, FEMA Act, Companies Act or Custom Act

No wealth tax shall be levied in respect of asset disclosed in declaration form. Further, where a declaration is made by a firm, assets so declared shall not be taken into account in computing the net wealth of any partner or in determining the value of interest of any partner in the firm.

Only one declaration can be made

PERSONS NOT ENTITLED TO AVAIL OF ONE TIME COMPLIANCE OPPORTUNITY

Any person in respect of whom an order of detention has been made under the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974

Any person who is subject to prosecution for any offence which is punishable under Chapter IX or Chapter XVII of Indian Penal Code, Narcotic Drug Act, 1985, Unlawful Activities (Prevention) Act, 1967, Prevention of Corruption Act, 1988

Any person notified under sec. 3 of Special Court Act, 1992

Any person against whom notice of assessment has already been issued under the IT Act and proceeding is pending before tax authority

Any person against whom the time-limit for furnishing of notice of assessment has not expired pursuant to search, requisition or survey, as the case may be, carried out under IT Act

Any person against whom information has been received under DTAA in respect of such undisclosed asset (in case of undisclosed bank account, it may or may not have any balance)

AGREEMENT WITH FOREIGN COUNTRY

The Central Government may enter into an agreement with the government of any country or specified territory

to avoid double taxation

for exchange of information for prevention of evasion or avoidance of tax on undisclosed foreign income

for investigation of cases of evasion or avoidance of tax on undisclosed foreign income

for recovery of tax

for carrying out any other purpose

MANNER OF SERVICE OF NOTICE, SUMMONS, REQUISITION, ORDER ETC.

The above may be furnished to the person named therein by any of the following modes:- Post Courier Fax Message E-mail

MISCELLANEOUS

All information contained in any statement or return made or furnished under the IT Act or obtained or collected for the purpose of the said Act may be used for the purpose of this Act

The Act provides for inclusion of offence of tax evasion as a scheduled offence under PMLA

Thank You

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