In keeping with one of its key election promises to curb the growth of black money, the government introduced in Parliament the Undisclosed Foreign Income and Assets (Imposition of Tax) Bill, 2015 - popularly referred to as the anti-black money Bill - earlier this month. Tapati Ghose, partner, Deloitte Haskins & Sells LLP, shares her take on how the stringent provisions to tax undisclosed foreign income and assets will play out. Edited excerpts:
What is the coverage and scope of the Bill?
The Bill provides for separate taxation of any undisclosed income in relation to foreign income and assets. Such income will henceforth not be taxed under the Income Tax Act (ITA), but under the stringent provisions of the proposed new legislation, and covers all residents, other than not ordinarily resident in India as per the ITA.
"Undisclosed foreign income and asset" has been defined as the total amount of undisclosed income and the value of an undisclosed asset, located outside India. It has to be held by the assessee in his name, or in respect of which he is a beneficial owner, and about which he has no explanation about the source of investment in such asset or the explanation given by him is, in the opinion of the assessing officer, unsatisfactory.
Do the provisions also apply to companies? Are the directors of such companies also liable?
The Bill covers all persons who are residents (other than not ordinary residents). So a company that fits into the definition of a resident under Section 6 will get covered. 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.
How is the value of an undisclosed foreign asset to be computed?
An undisclosed foreign asset is proposed to be charged to tax in the previous year in which such asset comes to the notice of the tax authorities.
The value of an undisclosed asset would be the fair market value of an asset determined in the manner as may be prescribed in the year it comes to the notice of the tax officer.
Income already assessed under ITA or assessable under this Act is to be reduced from the value of undisclosed asset if the taxpayer can furnish evidence to the satisfaction of the tax officer that the asset has been acquired from income that has been assessed or assessable to tax. No deduction is allowable for any expenditure or allowance, or set-off losses.
What is the relief proposed as the "one-time compliance opportunity"?
This is not an amnesty scheme as no immunity from penalty is being offered. It is merely an opportunity for persons to come clean, and become compliant before the stringent provisions of the new Act come into force.
Taxpayers may make a declaration of any undisclosed assets outside India, and acquired from income chargeable to tax under the ITA for any year prior to FY 2015-16 which has escaped assessment due to non-filing of IT return, or failure to disclose fully and truly all material facts necessary for the assessment.
Tax at the rate of 30 per cent of value of assets on date of commencement of the Act and the penalty of same amount is to be paid before the date notified by the government. Such persons will not be prosecuted under the stringent provisions of the new Act.
Such declaration, however shall not affect the finality of completed assessments and will not be admissible in evidence against the declarant under various laws. The tax paid on voluntarily disclosed asset is also not refundable.
What are the interests and penalties applicable in case of non-compliance?
In case of undisclosed income, interest would be levied as per the provisions of the ITA for default in filing the tax return and payment or deferment of advance tax. Stringent penalty provisions have been proposed on non-disclosure of foreign assets and income. This includes three times the amount of tax, that is, ninety percent of the undisclosed income, or the value of the undisclosed asset.
Non-filing of tax return, or filing of return with inadequate or inaccurate particulars attracts ~10 lakh in penalty. Penalty will equal to amount of taxes for continuous default in payment of taxes. Failure to answer questions of a tax authority or give evidence in response to summons, could attract penalty ranging from ~50,000 to ~2 lakh.
Would prosecution proceedings be applicable for non-compliances?
Punishment proposed with respect to undisclosed foreign income and assets includes rigorous imprisonment for a period between six months and seven years, for failure to furnish return of income in relation to foreign income and asset.
This provision will also apply to banks and financial institutions aiding in concealment of foreign income or assets of resident Indians, or falsification of documents. Any willful attempt to evade payment of taxes, interest or penalty could attract imprisonment for a period between three and ten years, and fine at the discretion of the court.
