The Undisclosed Foreign Income and Assets (Imposition of Tax) Bill, 2015Anti-Black Money Bill

Applicability and Object

Applicability

• The Black Money Bill (‘Bill’) shall be applicable from 01-04-2016

Objectives of the Bill

• To tax undisclosed foreign income and assets acquired from such undisclosed foreign income;

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

• To prevent illegitimate income and assets 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 of the Bill

• Regular tax, interest, penalty, prosecution regime for undisclosed foreign income and assets of an ordinarily resident

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

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

• No wealth tax and no interest under Section 234A, 234B or 234C

• Penalty up to 3 times of tax computed

• One-time limited window compliance scheme – Levy of tax, lower penalty of up to 100% of tax computed and no prosecution

• 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 Section 6 of the Income-tax Act (‘I-T Act’)

• Assessee shall include every person who is deemed to be an assessee-in-default under I-T Act

Who is liable to pay tax?

• Undisclosed Asset Located Outside India

It is an asset (including foreign interest in an entity) located outside India

Assessee may be owner or beneficial owner of such an asset

It shall be deemed to be an undisclosed asset if assessee doesn’t give satisfactory explanation about source of investment in such asset

• Undisclosed Foreign Income and Asset

It shall be aggregate of following:

Amount of undisclosed income from a source outside India

Fair market value of an undisclosed foreign asset

What is deemed to be an undisclosed foreign income?

Undisclosed foreign income or asset shall be:

Foreign income which is not disclosed in return of income (original, revised or belated);

Foreign income in respect of which return of income is not furnished; and

Undisclosed foreign asset

What shall be subject to tax?

What is excluded from undisclosed foreign income?

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

a) Sections 29 to 43C: Assessment of business profits

b) Sections 57 to 59: Assessment of income from other sources

c) Section 92C: Transfer Pricing Provisions

We can understand this proposition with the following examples.

Example 1: Assessee acquires a house property in a foreign country which is not disclosed in the return of income. The fair market value of such an asset shall be subject to tax under this bill. Any income earned from such property which is not offered to tax in the return of income shall also be charged to tax under this bill.

Example 2: Assessee acquires a house property in a foreign country and discloses it in the return of income. Any income earned from such property during the year is offered to tax in the return of income. In this case nothing would be taxable under the bill. However, if assessee transfers the property during the year and suppresses the full value of consideration and during assessment, Assessing Officer assesses the capital gains or income from house property at a higher sum, the additional sum so assessed shall be chargeable to tax under this bill.

What is excluded from undisclosed foreign income? Cont’d…

Example 3: Assessee acquires a house property in a foreign country and discloses it in the return of income. In this case nothing would be taxable under the bill. However, if assessee earns income from such property during the year but does not offer it to tax in the return of income in this case if Assessing Officer assesses the income from house property, the sum so assessed shall be chargeable to tax under this bill.

What is excluded from undisclosed foreign income? Cont’d…

• No expenditure shall be allowed as deduction from undisclosed foreign income or asset

• No loss can be set-off against such an income or asset

• Any income which has been assessed to tax under I-T Act shall be reduced from 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 Bill

Computation Mechanism

Example:

A foreign asset was acquired by an assessee in the financial year 2009-10 for Rs. 50 lakhs. Out of total investment, Rs. 20 lakhs was assessed to tax. When the Assessing Officer identified the undisclosed asset in the year 2017-18, the value of such asset was determined at Rs. 1 crore. In this case the amount chargeable to tax shall be computed after reducing the proportionate value of sum which was assessed to tax and invested in the foreign asset. It shall be Rs. 60 lakhs [Rs. 1 Crore less (Rs. 1 Crore X 20/50)]

Computation Mechanism Cont’d…

• Undisclosed foreign income of the previous year is taxable at flat rate of 30%

• FMV of undisclosed foreign asset shall be taxable in year in which it comes to notice of Assessing Officer

Note: Nothing is mentioned in this Bill or the Finance Bill, 2015 about the levy of surcharge and Education cess on the tax computed at the rate of 30% on undisclosed foreign income or asset.

Charge and Rate of tax

• The Income-tax authorities shall be the authorities for the purpose of this bill

• If assessee has no liability under the I-T Act, the tax authority shall be one which has jurisdiction of area where assessee resides or carries on its business

• Tax authorities shall have same powers as are vested in a Court under Code of Civil Procedure, 1908

• Tax authorities can make any inquiry or investigation even if no proceedings are pending before it

Tax Authorities

• The Assessing Officer on receipt of information shall serve a notice requiring assessee to produce such information and document as he may require

• Assessment order shall be made within a period of 2 years from the end of the financial year in which notice was issued (except in a few circumstances, i.e., assessment pursuant to order of Tribunal, High Court, etc.)

Assessment

Penalty

Nature of default Penalty Prosecution

Non-disclosure of foreign income and asset [Clause 41]

If tax has been computed in respect of undisclosed foreign income and asset

3 times of tax payable on undisclosed income

-

Failure to furnish return of income [Clause 42/43]

If assessee does not disclose foreign asset or income in his return or fails to furnish return under I-T Act.

Note: No penalty shall be levied under Clause 42 or 43 if any foreign asset, being one or more bank accounts have an aggregate balance which does not exceed Rs. 5 Lakh at any time during the previous year.

Rs 10 lakhs( In addition to penalty

levied under clause 41)

6 months to 7 years and fine if default is

willful

Penalty Cont’d…

Nature of default Penalty Prosecution

Willful attempt to evade tax [Clause 51]

If assessee willfully attempts to evade any tax, penalty or interest.

- 3 years to 10 years

If a person willfully attempts to evade any tax, penalty or interest.

- 3 months- 10 years

Default in payment of tax arrear [Clause 44]

Continuing default by assessee in making payment of tax

Note: An assessee shall not cease to be liable to any penalty merely by reason that before the levy of penalty he has paid the tax.

Amount of tax arrear -

Penalty Cont’d…

Nature of default Penalty Prosecution

Failure to furnish documents before tax authority [Clause 45]

If any person fails to:a) answer any question asked by tax authorityb) sign a statement which he is legally bound to

do soc) attend or to give evidence or produce books

of account

Rs. 50,000 to Rs. 2,00,000

-

Furnishing of false statement in verification [Clause 52]

If a person makes a false statement in verification or delivers false accounts or statement

- 6 months to 7 years and fine

Penalty Cont’d…

Nature of default Penalty Prosecution

Punishment for abatement [Clause 53]

Abetment to make and deliver false return, account, statement or declaration relating to tax payable

- 6 months to 7 years and fine

Punishment for second and subsequent offences [Clause 58]

If a person, who has been convicted for an offence, is again convicted for an offence under this Bill

Rs. 5 lakhs to Rs. 1 Crore

3 years to 10 years

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

The striking points in this regard are as under:

• Any person may make a declaration in respect of any undisclosed assets located outside India which have been acquired from income chargeable to tax for any assessment year prior to assessment year 2016-17.

• A flat rate of tax at 30% on value of such undisclosed asset and an equal of amount of penalty would be recovered from a person availing of this opportunity. However, immunity from prosecution is being offered to such person.

• No interest under Section 234A, 234B and 234C of I-T Act.

One time compliance opportunity

• Amount of undisclosed investment in an asset located outside India shall not be included in the total income of the assessee for any assessment year under the Income-tax Act.

• Any person availing of this opportunity shall not be entitled to reopen any assessment or reassessment made under the Income-tax Act or wealth-tax Act and, further, he can not seek any appeal, reference or other proceedings in relation to any such assessment or reassessment. In other words, declaration so made would not affect the finality of completed assessment.

• Tax and penalty so paid shall not be refundable.

• Any declaration made by misrepresentation or suppression of fact shall be deemed as void-ab-initio.

One time compliance opportunity Cont’d…

• Declaration so filed shall not be considered as an evidence against the declarant for initiating penalty or prosecution proceedings under the Income-tax Act, Wealth-tax Act, 1957, Foreign Exchange Management Act, 1999, Companies Act, 2013 or the Customs Act, 1962.

• No wealth-tax shall be levied in respect of asset disclosed in the 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 the interest of any partner in the firm.

One time compliance opportunity Cont’d…

The following persons will not be able to get the benefit 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 (Subject to certain conditions)

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

Persons not entitled to avail of one time compliance opportunity

• Any person notified under section 3 of the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992.

• Any person against whom the notice of assessment has already been issued under the I-T Act and proceeding is pending before the 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 I-T 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).

• In other words, one-time opportunity is for ‘black money’ and not for ‘red money’

Persons not entitled to avail of one time compliance opportunity Cont’d…

The Central Government may enter into an agreement with the Government of any other 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; or

for carrying out any other purpose of the proposed legislation.

Agreement with foreign countries

Notice, summons, requisition, order or any other communication under the proposed legislation may be furnished to the person named therein by any of the following modes:

a) Post

b) Courier

c) Fax message

d) E-mail

A notice would be deemed to have been duly served if the person has appeared in any proceeding or cooperated in any inquiry relating to an assessment, except in case where such person has raised objection before the completion of assessment.

Manner of service of notice, summons, requisition, order, etc.

Miscellaneous

All information contained in any statement or return made or furnished under the I-T Act or obtained or collected for the purposes of the said Act may be used for the purposes of this legislation.

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

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