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

Date posted: Saturday 18 July 2015
Laws:

Introduction

Do you possess Black Money? Grab your chance to come clean! The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (“Black Money Act”), has been notified on 26th May, 2015, with stringent provisions on tax, interest, penalty and prosecution for having illegal funds stashed abroad. The government has, however, offered a one-time opportunity to individuals to declare their undisclosed foreign assets and incomes and avoid penal action. For those wanting to come clean, there would be a compliance window in two parts – to declare assets and to pay 30% tax and 30% penalty. Once the compliance window closes, anyone found having undeclared overseas wealth would be required to pay 30% tax, 90% penalty, resulting into an outflow of 120% of the asset value and face criminal prosecution, which may result into a rigorous imprisonment of 3 years to 10 years. This article will provide you with an overview of the key provisions of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.

Applicability of the Act

  1. Black money or “black income”, which is income on which taxes payable have been evaded, can be classified into two categories: domestic and foreign. The Black Money Act will deal only with the black money stashed outside India.
  2. The Black Money Act is applicable only to Residents other than not ordinarily resident in India who have undisclosed foreign income/assets.
  3. The Black Money Act, enacted on 26th May, 2015 has become effective from 1st July, 2015.

Definition of undisclosed foreign income and assets

  1. The total undisclosed foreign income and assets (“Black Money”) have been defined to include,
    • Foreign income which has not been disclosed in the return of income under the Income-tax Act, 1961 (“IT Act”);
    • Foreign income for which a return is required to be furnished under the IT Act, but such return has not been filed; and
    • Value of an undisclosed asset outside India.
  2. It shall exclude, any variation made in foreign income in the assessment or reassessment of the total income of any previous year under certain provisions of the IT Act
  3. The income included in the total undisclosed foreign income and asset under this Act shall not form part of the total income under the IT Act.
  4. No exemptions, deductions, set-off or carry-forward of losses under the provisions of the Income Tax Act would be allowed.
  5. It shall exclude any income,
    • which has been assessed to tax for any assessment year under the It Act prior to the assessment year to which the Black Money Act applies; or
    • which is assessable or has been assessed to tax for any assessment year under the Black Money Act.

Tax & Penalties

  1. The Black Money Act provides for the taxation of undisclosed foreign income and assets at a flat rate of 30%. The tax of 30% shall be levied on the fair market value of the undisclosed asset.
  2. In addition to the tax, a penalty which shall chargeable, which shall be equal to 300% of the tax computed, i.e. 90% of the undisclosed income or value of undisclosed assets, whichever is applicable.
  3. In case of non-filing of returns, non-disclosure of income or assets, failure to furnish information or furnishing of incorrect information in the return, the penalty provided is Rs 10 lakh. Such penalty shall not be chargeable where the undisclosed asset is a bank account whose aggregate balance <= Rs 5,00,000 at any time during the previous year.
  4. An assessee in default or deemed to be in default in making the payment of tax, shall be liable to a penalty of an amount, equal to the amount of tax arrears.
  5. A person shall be liable to a penalty >=Rs. 50,000, but <Rs 2,00,000, if he has failed, without reasonable cause, to
    • answer any question put to him by a tax authority;
    • sign any statement made by him in the course of any proceedings under the Black Money Act;
    • attend or produce books of account or documents at the place or time, in response to summons issued.

Prosecution

  1. Non-filing of returns with respect to foreign income or assets or bank accounts or failure of furnishing the information relating to a foreign asset (including financial interest in an entity) in a return is punishable with rigorous imprisonment of between 6 months and 7 years.
  2. Wilful attempt of any manner to evade any tax, penalty or interest chargeable or imposable under the Black Money Act, by a resident other than not ordinarily resident in India shall be punishable with rigorous imprisonment for a term which shall not be less than 3 years but which may extend to 10 years.
  3. Making a statement in any verification , or delivering an account which is false shall be punishable with rigorous imprisonment of between 6 months and 7 years
  4. The Black Money Act also makes inducement or abetment of another person to file a false return or make a false statement or declaration under the Act a punishable offence, resulting into rigorous imprisonment of between 6 months and 7 years. Theoretically, this provision in the law can hold banks, chartered accountants, legal advisors and financial institutions liable, together with the holders of black money.
  5. In any prosecution for any offence under the Black Money Act which requires a culpable mental state (intention, motive or knowledge of a fact or belief in, or reason to believe, a fact) on the part of the accused, the court shall presume the existence of such mental state. It shall be a defense for the accused to prove the fact that he had no such mental state.
  6. Where an offence has been committed by a company, every person who, at the time the offence was committed, was in charge of, and was responsible to, the company for the conduct of the business of the company as well as the company shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly.
  7. Second and subsequent offences will be punishable with rigorous imprisonment of between 3and 10 years with a fine of up to Rs 1 crore.

One time Compliance Window

  1. The Black Money Act also provides for a one-time limited compliance window for a short period for offenders to come clean about their foreign assets and income by paying 30% tax and a “concessional” penalty of the same amount, thereby avoiding having to face prosecution. Hence the total tax payable on such declared foreign assets and income shall be limited to 60% instead of 120%.
  2. Under this Scheme, the assesse shall have to make the declaration of the foreign assets and income on or before 30th September, 2015, and pay the tax and penalty in respect of the undisclosed foreign assets so declared on or before 31st December, 2015.
  3. Under this voluntary disclosure of income scheme, 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.

Power of the tax authorities

  1. The tax authorities will have powers of discovery and inspection, issue of summons, enforcement of attendance, production of evidence and impounding of account books and documents.
  2. Any proceeding under this Act before a tax authority shall be deemed to be a judicial proceeding within the meaning of relevant sections of the Indian Penal Code.

Miscellaneous

  1. The Black Money Act empowers the Union government to enter into agreements with other countries for the exchange of information, recovery of tax and avoidance of double taxation.
  2. The new act also proposes amendments to the Prevention of Money Laundering Act, 2002 (“PMLA”). It seeks to make the offence of concealment of income or evasion of tax in relation to a foreign asset a predicate offence under the PMLA. This provision would enable enforcement agencies to attach and confiscate unaccounted assets held abroad and launch prosecution proceedings against persons indulging in laundering of black money.
  3. The assesse shall have the right to appeal to the Income Tax Tribunal, Jurisdictional High Court and Supreme Court on substantial question of law.

Some FAQs released by Government

  1. Whether immunity in respect of declaration made under the scheme is provided in respect of Acts other than those mentioned in section 67 of the Act?

Answer: Section 67 provides immunity from prosecution under the five Acts viz. the Income-tax Act, Wealth-tax Act, FEMA, Companies Act and the Customs Act. It does not provide immunity from prosecution under any other Act. For example- if the undisclosed asset has been acquired out of the proceeds of sale of protected animals the person will not be eligible for immunity under the Wildlife (Protection) Act, 1972.

  1. Whether the person making the declaration will be provided immunity from the Prevention of Money Laundering Act, 2002?

Answer: The offence under the PMLA arises while laundering money generated from the process or activity connected with the offences specified in the schedule to the PMLA. Therefore, the primary requirement under PMLA is commission of a scheduled offence. With the enactment of the Act, the offence of wilful attempt to evade tax under section 51 of the Act has become a scheduled offence under PMLA. However, where a declaration of an asset has been duly made under section 59 of the Act (under one-time compliance window) the provisions of section 51 will not be applicable in respect of that asset. Therefore, PMLA will not be applicable in respect of the scheduled offence of wilful attempt to evade tax under section 51 of the Act in respect of assets for which declaration is made under section 59 of the Act.

  1. Where an undisclosed foreign asset is declared under Chapter VI of the Act and tax and penalty is paid on its fair market value then will the declarant be liable for capital gains on sale of such asset in the future? If yes, then how will the capital gains in such case be computed?

Answer: Yes, the declarant will be liable for capital gains under the Income-tax Act on sale of such asset in future. As per the current provisions of the Income-tax Act, the capital gains is computed by deducting cost of acquisition from the sale price. However, since the asset will be taxed at its fair market value the cost of acquisition for the purpose of Capital Gains shall be the said fair market value and the period of holding shall start from the date of declaration of such asset under Chapter VI of the Act.

  1. Can a declaration be made of undisclosed foreign assets which have been assessed to tax and the case is pending before an Appellate Authority?

Answer: As per section 65 of the Act, the declarant is not entitled to re-open any assessment or reassessment made under the Income-tax Act. Therefore, he is not entitled to avail the tax compliance in respect of those assets. However, he can voluntarily declare other undisclosed foreign assets which have been acquired or made from income not disclosed and consequently not assessed under the Income-tax Act.

For more FAQs, pls refer: http://www.incometaxindia.gov.in/communications/circular/circular13_2015.pdf

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