BLACK MONEY [THE UNDISCLOSED FOREIGN INCOME AND ASSETS]

The Black Money Bill has received the assent of the President on the 26th May, 2015. This Act, shall come into force on the 1st day of April, 2016.

The Bill provides for separate taxation of any undisclosed income in relation to foreign income and assets. Such Income will not be taxed under the Income-tax Act but under the stringent provisions of this legislation.

SCOPE:

The Act will apply to all persons resident in India. Provisions of the Act will apply not only to undisclosed foreign income but also to undisclosed foreign asset (including financial interest in any entity).

The law provides for the taxation of undisclosed foreign income and assets at a flat rate of 30 per cent. No exemptions, deductions, set-off or carry-forward of losses under the provisions of the Income Tax Act would be allowed.

  • 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.

A foreign asset, even if disclosed in the income tax return, may be treated as an undisclosed foreign asset if one is not in a position to prove the source of investment of that asset. Therefore, mere disclosure of the asset in the income tax return may not suffice to be harmless from this law.

Black-Money (1)

APPLICABILITY:

  • This Bill covers all Residents, so also covers Companies(and other entities)
  • Expatriate employees, including their family members, qualifying as Ordinarily Residents would also fall under the Bill’s ambit
  • 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

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 assessee even 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)

Penalties

The penalty for non-disclosure of income or an asset located outside India will be equal to three times the amount of tax payable thereon, i.e. 90 percent of the undisclosed income or the value of the undisclosed asset. This is in addition to the tax payable at 30 per cent.

Failure to furnish return in respect of foreign income or assets shall attract a penalty of Rs.10 lakh. The same amount of penalty is prescribed for cases where, although the assessee has filed a return of income, he has not disclosed the foreign income and asset or has furnished inaccurate particulars of the same.

Subsequent and second offence will be punishable with rigorous imprisonment of 3-10 years with fine upto 1 crore rupees.

 Prosecutions

The Bill proposes enhanced punishment for various types of violations.

Abetment or inducement of another person to make a false return or a false account or statement or declaration under the Act will be punishable with rigorous imprisonment from six months to seven years.

This provision will also apply to banks and financial institutions aiding in concealment of foreign income or assets of resident Indians or in falsification of documents.

 How to protect yourself:

  • 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
  • The compliance window will not be offered to non-resident Indians or professionals working abroad — it is only being provided to Indian residents who are income tax assessees and have spent more than 182 days in a year in India.
  • Under this voluntary disclosure of income scheme of sorts for Indians holding black money outside the country, no wealth tax will be levied on the declared income and no prosecution will be based on the declared income of those who avail of this one-time opportunity.

 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.

Protections:

 The principles of natural justice and due process of law have been embedded in the Act by laying down the requirement of –

  • mandatory issue of notices to the person against whom proceedings are being initiated
  • grant of opportunity of being heard
  • necessity of taking the evidence produced by him into account
  • recording of reasons
  • passing of orders in writing
  • limitation of time for various actions of the tax authority, etc.

Further, the Right of Appeal has been protected by providing for appeals to the Income-tax Appellate Tribunal, and to the Jurisdictional High Court and the Supreme Court on substantial Questions of Law.

Failure to report bank accounts with a maximum balance of upto Rs.5 lakh at any time during the year will not entail penalty or prosecution.  This safeguard is to protect persons holding foreign accounts with minor balances which may not have been reported out of oversight or ignorance.

Lot of misinformation circulating regarding new blackmoney law, the Finance Ministry is likely to issue FAQs explaining the provisions of the new blackmoney law and also to clarify whether one-time compliance window can be availed by persons already under probe. So it is advised to wait for some time for more clarity on this legislation.

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