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Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Rules, 2015

Date posted: Saturday 25 July 2015
Laws:

Introduction

Last week, we covered the summary of The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (“Black Money Act”). The Black Money Act is applicable to Residents other than not ordinarily resident in India who have undisclosed foreign income/assets. The Central Board of Direct Taxes (“CBDT”) has, on 2nd July, 2015 notified the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Rules, 2015 (“Black Money Rules”) for calculating foreign assets. The value of the foreign assets, including immovable property, jewellery and precious stones, archaeological collections and paintings, shares and securities and shares in unlisted firms abroad will be calculated at the fair market value. The rules contain seven forms including those which have to be filled by persons, while declaring the undisclosed assets outside the country. This article will provide you with an overview of these rules, which includes the method of calculation of fair market value of foreign assets.

The Fair Market Value for the purpose of the Black Money Act shall be determined in the following manner:

Valuation of bullion, jewellery or precious stone, archaeological collections, drawings, paintings, sculptures or any work of art and immoveable property

The Fair Market Value of bullion, jewellery or precious stones, archaeological collections, drawings, paintings, sculptures or any work of art and immoveable property shall be higher of the following:

  1. Its cost of acquisition
  2. The price that the bullion, jewellery or precious stone shall ordinarily fetch if sold in the open market on the valuation date. The assessee may obtain a report from a valuer recognised by the Government of a country or specified territory outside India or any of its agencies for the same.

Valuation of shares and securities

  1. Quoted shares and securities

The Fair Market Value of quoted shares and securities shall be higher of the following:

  • Its cost of acquisition
  • Price determined in the following manner:
    • the average of the lowest and highest price of such shares and securities quoted on any established securities market on the valuation date; or
    • where on the valuation date there is no trading in such shares and securities on any established securities market, average of the lowest and highest price of such shares and securities on any established securities market on a date immediately preceding the valuation date when such shares and securities were traded on such securities market
  1. Unquoted shares and securities

The Fair Market Value of unquoted shares and securities shall be higher of the following:

  • Its cost of acquisition
  • value, on the valuation date, of such equity shares, determined as per the following formula:

FMV = (A+B-L)*(PV)/(PE), where

  • A= book value of all the assets (other than bullion, jewellery, precious stone, artistic work, shares, securities and immovable property) as reduced by
    • any amount of income-tax paid, if any, less the amount of income-tax refund claimed, if any,
    • any amount shown as asset including the unamortised amount of deferred expenditure which does not represent the value of any asset
  • B= fair market value of bullion, jewellery, precious stone, artistic work, shares, securities and immovable property as determined in the manner provided in the Black Money Rules
  • L=book value of liabilities, excluding the following amounts
    • the paid-up capital in respect of equity shares,
    • the amount set apart for payment of dividends on preference shares and equity shares,
    • reserves and surplus other than those set apart towards depreciation (even if the resulting figure is negative),
    • any provision for taxation (other than amount of income-tax paid less the amount of income-tax claimed as refund) to the extent of its excess over the tax payable as per book profits,
    • any provisions made for meeting liabilities, other than ascertained liabilities,
    • any contingent liabilities other than arrears of dividends payable in respect of cumulative preference shares
  • PV= the paid up value of such equity shares
  • PE=total amount of paid up equity share capital as shown in the balance-sheet
  1. Unquoted shares and securities other than equity shares

The Fair Market Value of unquoted shares and securities other than equity shares shall be higher of the following:

  • Its cost of acquisition
  • The price that such shares and securities shall ordinarily fetch if sold in the open market on the valuation date. The assessee may obtain a report from a valuer recognised by the Government of a country or specified territory outside India or any of its agencies for the same.

Valuation of an account with bank

The value of an account with bank shall be:

  1. The sum of all the deposits made in the account with the bank since the date of opening of the account or
  2. Where a declaration of such account has been made under the Black Money Act and tax and penalty has been charged in the same, the sum of all the deposits made in the account with the bank since the date of such declaration. However, where any deposit is made from the proceeds of any withdrawal from the account, such deposit shall not be taken into consideration while computing the value of the account.

Valuation of interest of a person in a partnership firm (“Firm”) or in an association of persons (“AOP”) or a limited liability partnership (“LLP”) of which he is a member

The value of interest of a person in a Firm, AOP or LLP shall be decided in the following manner:

  1. Net asset of the firm, AOP or LLP (“Net Asset”) on the valuation date shall be determined.
  2. The portion of the Net Asset as is equal to the amount of its capital shall be allocated among its partners or members in the proportion in which capital has been contributed by them.
  3. The residue of the Net Asset shall be allocated among the partners or members in accordance with the agreement of partnership or association for distribution of assets in the event of dissolution of the firm or association.
  4. In the absence of such agreement, the Net Assets shall be allocated in the proportion in which the partners or members are entitled to share profits.
  5. The sum total of the amount so allocated to a partner or member under point 2,3 and 4 shall be treated as the value of the interest of that partner or member in the partnership or association.
  6. Net Asset of the Firm, AOP or LLP shall be (A+B-L), where “A”, “B” and “L” shall have the same meaning as assigned to them under Clause 2.2.1, 2.2.2 and 2.2.3 of “Valuation of shares and securities”.

Valuation of any other asset

The value of any other asset shall be higher of the following:

  1. Its cost of acquisition or the amount invested and
  2. The price that the asset would fetch if sold in the open market on the valuation date in an arm’s length transaction.

Fair Market Value in case of sale of the above assets before the valuation date

  1. In any of the above cases, if the asset was transferred before the valuation date, the fair market value of such asset shall be higher of the following:
    • Its cost of acquisition and
    • Its sales price.
  2. However, if the asset is transferred without consideration or at inadequate consideration before the valuation date, the fair market value of the asset shall be higher of the following:
    • Its cost of acquisition and
    • The fair market value on the date of transfer.

Valuation in case of purchase of a new asset from consideration received from old asset

Where a new asset has been acquired or made out from consideration received on account of transfer of an old asset or withdrawal from a bank account, then the fair market value of the old asset or the bank account, as the case may be, shall be reduced by the amount of the consideration invested in the new asset.

Conversion Rate of currency

  1. Permitted currencies designated by RBI

The conversion rate to be used to convert the Fair Market Value of the asset from permitted foreign currency to Indian currency shall be as per the reference rate of the RBI on the date of valuation.

  1. Other than permitted currencies
    • The Fair Market Value shall first be converted into US Dollars (USD), on the valuation date, as per the rate specified by the Central Bank of the country or jurisdiction in which the asset is located (where the Central Bank of the country or jurisdiction in which the asset is located does not specify the rate of conversion from its local currency to USD, then such rate shall be the one as specified by any other bank regulated under the laws of that country or jurisdiction)
    • USD value derived as per the above clause shall be converted into Indian currency as per the reference rate of the RBI on the date of valuation.

Forms

  1. Form 1 – Notice of demand

Where any tax, interest or penalty is payable in consequence of any order passed under the provisions of the Black Money Act, the Assessing Officer shall serve upon the assessee a notice of demand in Form 1 specifying the sum so payable.

  1. Form 2 – Appeal to Commissioner (Appeals)
    • Any person objecting to the amount of tax on undisclosed foreign income and asset for which he is assessed by the Assessing Officer, denying his liability to be assessed under this Act, objecting to any penalty imposed by the Assessing Officer, objecting to an order of rectification having the effect of enhancing the assessment or reducing the refund or objecting to an order refusing to allow the claim made by the assessee for a rectification under section 12, may appeal to the Commissioner (Appeals) in Form 2.
    • Every appeal filed under 2.1 above shall be accompanied by a fee of Rs. 10,000/-
    • No appeal shall be admitted unless at the time of filing of the appeal the assessee has paid the tax alongwith penalty and interest thereon on the amount of liability which has not been objected to by the assessee.
  2. Form 3 – Appeal to Appellate Tribunal

Any assessee aggrieved by an order passed by the Commissioner (Appeals) or an order passed by the Principal Commissioner or the Commissioner under any provision of the Black Money Act, may appeal to the Appellate Tribunal against such order in Form 3.

  1. Form 4 – The memorandum of cross-objections

The Assessing Officer or the assessee, as the case may be, on receipt of notice that an appeal against the order of the Commissioner (Appeals) has been preferred to the Appellate Tribunal by the other party, may within thirty days of the receipt of the notice, file a memorandum of cross-objections in Form 4, irrespective of the fact that he may not have appealed against such order or any part thereof.

  1. Form 5 – Form of tax arrears

A statement of tax arears shall be drawn up by the Tax Recovery Officer in Form 5.

  1. Form 6 – Declaration of undisclosed asset located outside India

A declaration, made on or before 30th September,2015,  in respect of any undisclosed asset located outside India under the One-time compliance window (as discussed in Issue 12 of Changes, Challenges and Controversies in Corporate Law) shall be made in Form 6.

  1. Form 7 – Acknowledgement by The Principal Commissioner or the Commissioner

The Principal Commissioner or the Commissioner shall grant an acknowledgement in Form 7 to the declarant within 15 days of the submission of proof of payment of tax alongwith penalty by the declarant, when making a declaration under the One-time compliance window in respect of the undisclosed asset located outside India.

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