THE BLACK MONEY (UNDISCLOSED FOREIGN INCOME & ASSETS) AND IMPOSITION OF TAX ACT, 2015

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August 26,2016
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The Black Money (Undisclosed Foreign Income & Assets) and Imposition of Tax Act, 2015 aims to deal with the tax implications of the subject matter of the act, that may involve imposition of tax, procedures, management, penalties & connected matters. This act shall apply to all residents for all assessment years commencing w.e.f. April 1, 2016 except Not Ordinarily Residents. Definition of Resident : A person is called to be resident in India if : 1.He stays in India for 182 days or more during the relevant previous year ; or 2.He stays in India for 365 days or more during the 4 years preceeding the relevant previous year. A person is called to be a Not Ordinarily Resident if : 1.He is a Non Resident in atleast 9 years out of 10 years preceeding the relevant previous year ; or 2.He stays in India for 729 days or less during the 7 years preceeding the relevant previous year. If any of the above conditions is not fulfilled , then the person is called a Resident & Ordinarily Resident. Salient Features of the Act : •Tax @ 30% is to be charged on total value of undisclosed foreign income and asset and penalty@30% if the disclosure is made till 30th September, 2015 and taxes paid till 31st December, 2015 and thereafter@90%. •The total undisclosed foreign income and asset of an individual would include (a)income from a source located outside India which has not been disclosed in the tax returns filed or for which no tax returns have been filed (b) value of an undisclosed asset located outside India. •An Undisclosed Asset located outside India means an asset (including financial interest in any entity) located outside India, held by the assessee in his name or in respect of which he is a beneficial owner, and 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. •An Undisclosed Asset located outside India means an asset (including financial interest in any entity) located outside India, held by the assessee in his name or in respect of which he is a beneficial owner, and 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. •The value of an undisclosed asset is to be taken as in the previous year in which such asset comes into the Assessing Officer’s notice at its fair market value in the manner prescribed in the act. •The income under the act shall be computed after taking into consideration the following (a) No expenditure shall be allowed as deduction from undisclosed foreign income or asset (b)No loss can be set-off against such an income or asset (c).Any income which has been assessed to tax under IT Act shall be reduced from value of undisclosed foreign asset if asset is acquired from such income (d) Proportionate income, which was assessed to tax, shall be reduced from Fair Market Value of foreign undisclosed asset being immovable property and remaining amount shall be taxable. •If any resident & ordinarily resident fails to furnish a return of his income before the end of assessment year for any previous year or fails to furnish any information or furnishes inaccurate information and held any undisclosed asset or any foreign income at any time during such previous year, then assessing officer may direct him to pay a penalty of Rs.10 lakhs or he shall be liable to imprisonment of 6 months or upto 7 years with a fine w.e.f. Assessment Year 2015-16. •Further, it is pertinent to mention that in case assessee fails to furnish a return or furnishes inaccurate particulars regarding foreign asset/income , then he shall be liable for a penalty even if the assets/incomes are disclosed foreign assets/incomes.This would not apply to an asset, with a value of Rs. 5 lakhs or less. •Where any asset has been acquired before the commencement of this act & no declaration is made ,then such asset shall be deemed to have been acquired in the year in which it comes to assessing officer’s notice. • If an Undisclosed Foreign Asset is declared under Chapter VI of the act & tax & penalty is paid on its fair market value, even then 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 are 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 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. The Fair Market Value is higher of cost of acquisition or market value on valuation date. •If a person declares his undisclosed foreign assets in the income Tax return for assessment year 2015-16 or say 2014-15 (in belated return), then, since mere reporting of a foreign asset in Schedule FA of the Return does not mean that the source of investment in the asset has been explained, therefore declaration should be made under Chapter-VI of the act in respect of all those foreign assets which are unaccounted/ the source of investment in such asset is not fully explainable. •If a person is a non-resident, however, he was a resident of India earlier & had at that time acquired foreign assets out of income chargeable to tax in India which was not declared in the return of income or no return was filed in respect of that income, then according to Section-59, he is eligible to file a declaration under Section 59 in respect of those assets under Chapter VI of the Act. •If a person being a resident now, was a non-resident earlier & had acquired foreign assets at that time (which he continues to hold now) out of income which was not chargeable to tax in India, therefore, since those assets do not fall under the definition of undisclosed assets under the act, hence no declaration is needed to be filed by the person under the act. •If a Resident earned income outside India which has been deposited in his foreign bank account & the income was charged to tax in the foreign country when it was earned but the same was not declared in the return of income in India and consequently not taxed in India, then declaration under Chapter-VI is to be made of the foreign bank account since it is an undisclosed asset acquired from income chargeable to tax in India. The fair market value of the bank account shall be determined as per Rule3(1)(e). No credit of foreign taxes paid shall be allowable in India. •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 eg.- 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. •The Prevention of Money Laundering Act, 2002 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.

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