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The government on Friday notified the Undisclosed Foreign Income and Assets and Imposition of Tax Act, 2015, as well as the compliance window under it. Both are effective July 1 and the declaration can be filed both online and physically through Form 6.
The notification also states the rules for calculating foreign income and assets on which tax and penalties have to be paid. Tax and penalties on undeclared wealth and assets will be from assessment year 2016-17.
"Under the Act, tax is also chargeable for assessment year 2016-17, for which the relevant previous year is 2015-16. In exercise of its power to remove difficulties under section 86 of the Act, the central government has clarified the Act shall come into force on July 1, 2015," read a notification on the income tax department's website.
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The rules notified by the Central Board of Direct Taxes stated any income or asset declared through the compliance window, which ends on September 30, would attract a total of 60 per cent tax and penalty, without penal provisions such as a jail term. Those declaring their assets under this window can pay the levies till December 31.
After paying dues under the compliance window, a person or entity "shall not be prosecuted under the Act and the declaration made by him will not be used as evidence against him under the Wealth Tax Act, the Foreign Exchange Management Act, the Companies Act or the Customs Act. Wealth tax shall not be payable on any asset so disclosed", the Act says.
Once the compliance window is closed, those with undeclared assets and income abroad will have to pay tax of 30 per cent and a penalty of 90 per cent; they will also face prosecution. This means violators will not only lose their assets but also have to pay an amount more than the value of the asset.
Wilful attempts to evade tax in relation to foreign income will be punished with rigorous imprisonment of three to 10 years.
Failure to furnish return of income from foreign assets, as well as to disclose the assets, will be punishable with rigorous imprisonment of six months to seven years.
Divya Baweja, partner, Deloitte Haskins & Sells LLP, said, "Declaration could be filed on the specified Form 6 and referred by the CIT concerned for verification to the competent authority. If the disclosed data is already available with the authorities, an intimation would be sent to the declarant to exclude such assets and revise the declaration within 15 days."
The value of foreign assets, and shares and securities in unlisted firms abroad will be calculated at fair market value. The value of a foreign bank account would be the sum of all deposits made in the account since its opening, the rules said.
The fair market value of an immovable property will be higher than the acquisition cost or the price that the property will fetch in the open market on the date of valuation.
This principle will also be applicable when valuing bullion, jewellery or precious stones, as well as archaeological collections, drawings, paintings and sculptures and other work of art.
The rules said for valuing shares and securities of listed entities, the fair market value would be the cost of acquisition or the average of the lowest and highest price on the date of valuation, whichever was higher.
The rules also provide a formula to calculate the fair market value of unquoted equity shares, as well as to calculate the interest of a person in a partnership firm, an association of persons or a limited liability partnership.
The rules mention seven forms, including those to be filled by persons while declaring undisclosed assets outside India. The holders of the assets will have to disclose the details of the location of bank accounts, the date of their opening and the sum of all credits in a prescribed format.
For such declaration, the main form will be Form 6. "According to the Act, declaration under the chapter is to be made in such form and shall be verified in such manner, as may be prescribed. The form prescribed for this purpose is Form 6, which has been duly notified," the notification said.
Similarly, disclosures have to be made with regard to immovable property, art work, securities held or any other assets, along with their fair market value. With regard to jewellery, disclosures have to be made about their purity and the amount and value of gold, diamond and other precious metals. The rules say the Reserve Bank's reference rate on the date of valuation should be used for converting the value of foreign assets and income into rupees.
Where the fair market value of an asset is determined in a currency other than a permitted currency designated by the central bank, it should be converted into dollars on the date of valuation, according to the rate specified by the central bank of that country. Subsequently, it has to be converted into rupees.
The rules also provide for a format of notices to be sent to those holding undisclosed assets. A format for appeals to the Commissioner (Appeals) and Appellate Tribunal has also been provided.
