undisclosed foreign income and assets(imposition of taxes) bill, 2015
TRANSCRIPT
Fundmaster presents
The Undisclosed Foreign Income and Assets Bill, 2015By Abhishek Murali
Divya Sukumar
CONTENTS OF THE PRESENTATION
Jurisprudence of the Bill (The Evolution and Why it has been proposed)
Key Highlights of The Bill
Scope and Definitions
Rate of Taxes
Assessment Proceedings
Penalty and Prosecution under this Bill
Compliance Scheme
Other Laws read in concert with this Bill
What You Need to do if you have any foreign assets
Questions or Feedback – Contact
Jurisprudence of the proposed legislation
India is going through a revolutionary decade where there has been strong moves to bring black money into circulation
The Honourable Finance Minister, in this pursuit, announced in his 2015 Budget Speech that a new comprehensive law will be introduced to deal with the black money stashed abroad
On 20th March, 2015, the Undisclosed Foreign Income and Assets(Imposition of Tax) Bill was introduced
The new legislation provides for separate taxation of any undisclosed income in relation to foreign assets under the Income Tax, guided by this new legislation
Key Highlights of the Bill (1/2)
Tax, interest, penalty and prosecution for undisclosed foreign income and assets of Resident and Ordinarily Resident
No time limit for foreign income/assets escaping assessment
Flat rate of tax (@30%) on any undisclosed foreign income and asset. No exemption, deduction or set-off of carried forward losses will be allowed against such incomes
Severe penalty up to 3 times of the tax payable, in addition to the actual tax payable
Penalty of Rs.1 lakh for non-filing of return or not furnishing complete details of foreign assets
Key Highlights of the Bill (2/2)
The bill proposes enhanced type of prosecution for various violations including rigorous imprisonment from 3 to 10 years
One time compliance opportunity for a limited time – 30% tax and penalty of the same amount. No prosecution.
Scope and Definitions (1/3)
Applicable to Residents who are Ordinarily Residents (This term is explained in the next slide)
What is an Undisclosed Asset and Undisclosed Income Undisclosed Foreign Asset: An asset(including bank balances) located outside India
which the assessee owns and does not disclose or fails to show the source to purchase the asset. The Fair Market Value of the asset will be considered for taxation.
Undisclosed Foreign Income: Any income derived from any source from outside India by the assessee, that is not disclosed will be considered for taxation
If the Incomes and Assets are exhaustively disclosed, then tax, penalties and prosecution will not arise
Scope and Definitions (2/3)
How to determine if you are Resident and Ordinarily Resident(check your passports)
Stayed in India for 182 days or more in the relevant year? ORStayed for 60 days or more in the relevant year AND 365 days or
more in the preceding previous years
Have you been a non-resident in 9 out of the 10 preceding previous years? OR
Have you during the preceding 7 years been in India for 729 days or less?
Non Resident
yes no
Resident and Not Ordinarily Resident
Resident and Ordinarily Resident
yes no
This Bill is applicable only to Residents who are Ordinarily Resident and not the others
Scope and Definitions (3/3)
This Bill covers all Residents, it therefore also covers Companies(and other entities)
In case of companies, if it is proven that the offence has been committed with the consent or connivance or is attributable to any neglect on the part of the manager, secretary or other officer of the company, such person will also be held guilty and liable
There are specific provisions for making managers ( defined to include the managing director in certain instances) of a company jointly, and severally liable for payment of any amount due if the amount cannot be recovered from the company
Rate of Taxation of Foreign Income and Foreign Assets
The undisclosed income will be taxed at a flat rate of 30% followed by penalties as may be decided by the Assessing Officer
The Fair Market Value of the undisclosed asset will be taxed by the Assessing Officer at a flat rate of 30% along with penalties as he may deem to be applicable
The flat rate of tax is independent from the penalties, which will be levied separately
The compliance scheme offered by the Central Government currently will not allow free disclosure. The assessee still has to pay 30% tax and a penalty equal to the amount of tax to be paid
Assessment Proceedings
The Income Tax Authorities continue to levy taxes and administer revenues through the Income Tax Act, however, will refer to this act with regard to any Foreign Assets and Foreign Incomes
Tax authorities can make any inquiry or investigation into matters of the assesseeeven though there are no proceedings pending before it
AO will serve notice on the assessee before proceeding to take any action under this Act
The principles of Natural Justice cannot be violated. The assessee will be given an opportunity to be heard and to appeal to the ITAT, High Court and Supreme Court(where substantial question of law is involved)
Penalty and Prosecution (1/2)
Nature Penalty Prosecution(if any)
Non Disclosure of Foreign Income or Asset 300% of the Tax Payable (Not yet determined)
Failure to disclose foreign asset or income in the return of income
300% of the Tax Payable and Rs.10 Lakhs
6 months – 7 years – if default can be proved to be wilful
If person wilfully attempts to evade any tax, penalty or interest
3 months – 10 years
Continuing default by assessee in making payment of tax
Amount of arrears of tax
If assessee fails to answer any question, sign a statement he is legally bound to or fails to produce books and supporting evidences
Rs.50,000 to Rs.2,00,000
Penalty and Prosecution (2/2)
Nature Penalty Prosecution(if any)
Person makes false statement or delivers false evidences
6 months – 7 years
Abetment to make and deliver false return, account, statement or declaration relating to tax payable
6 months – 7 years
Subsequent offences under this act – where a person commits the second(or more) offence under this act
Rs.5 lakhs – Rs.1 crore 3 years – 10 years
Compliance Scheme – Not an Amnesty Scheme
The Bill provides for a one time compliance scheme where the assessee can disclose any foreign asset acquired by him/her prior to the current Assessment Year (AY 2016-17)
Tax will be levied at 30% and penalty equal to the same amount will be levied as well. However, this is not an amnesty scheme as penalty will not be waived and cannot be avoided
There will be no additional interest u/s 234 which will be levied
Such amount disclosed under the Compliance Scheme shall not be included in the income of any Assessment Year under the income tax act. Hence, assessments cannot be reopened due to disclosure under this scheme
Impact on Other Laws?
The assessee will be required to file a declaration with the details of the Asset and Incomes. This declaration will not be considered evidence for initiating penalty proceedings under the Income Tax Act, Wealth Tax Act(now no longer in use), or FEMA
This will not affect any agreement that The Central Government may enter into with any foreign countries regarding Double Taxation Avoidance Agreement, Exchange of information or Investigation etc.
What you need to do if you have a foreign asset -Fundmaster Author’s Views (1/2)
The move to bring back Black Money from abroad was political promise and a goal of the current Government. Once the Bill is passed in both houses(with necessary changes to the Draft) the President will assent to the same before it becomes a Law
This is the ideal time for all Residents who have studied abroad and have returned or have lived abroad and have returned, to review their investments and assets(including bank balances) that they might have outside India
The existing Income Tax law requires foreign assets to be disclosed, however, the proposed legislation could dole of serious punishment for negligence on the part of the assessee
assessees are advised to disclose any foreign assets that they may own(including part ownership) outside India
A slew of Expatriate employees now live in India and normally border on becoming a Resident and Ordinarily Resident. These employees are advised to keep the list of their bank accounts and other assets ready to disclose the same when the obligation arises
Even if the Expatriate or other assessee does not have any taxable income in India, he or she is under an obligation to disclose their assets and incomes outside India, and file their return of income, if they are a Resident and Ordinarily Resident
The author expects that there will be changes made to the Bill to give more clarity to certain situations that will pose a practical difficulty in disclosure, since the Bill is still under deliberation is a little rough around the edges. However, one must not underestimate the impact this law will have on foreign asset disclosure
What you need to do if you have a foreign asset -Fundmaster Author’s Views (2/2)
Do you have any questions? Wish to share feedback on this presentation? Feel free to contact us
Abhishek Murali
Email: [email protected]
Mob: +91 99625 21966/ +91 97102 21966
Divya Sukumar
Email: [email protected]
Mob: +91 98849 01199
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By Abhishek Murali
Email: [email protected]
Mobile: +91 99625 21966/ +91 97102 21966
Website: www.fundmaster.in