The UndisclosedForeign Incomeand Assets(Imposition ofTax) Bill, 2015The UndisclosedForeign Incomeand Assets(Imposition ofTax) Bill, 2015Anti-Black Money Bill

Applicability and Object

Applicability

• The Black Money Bill (‘Bill’) shall be applicable from 01-04-2016Objectives of the Bill

• To tax undisclosed foreign income and assets acquired from suchundisclosed foreign income;• To punish the persons indulging in illegitimate means of generatingmoney causing loss to the revenue;• To prevent illegitimate income and assets kept outside India from beingutilized in ways which are detrimental to India’s social, economic andstrategic interests and its national security.

Applicability

• The Black Money Bill (‘Bill’) shall be applicable from 01-04-2016Objectives of the Bill

• To tax undisclosed foreign income and assets acquired from suchundisclosed foreign income;• To punish the persons indulging in illegitimate means of generatingmoney causing loss to the revenue;• To prevent illegitimate income and assets kept outside India from beingutilized in ways which are detrimental to India’s social, economic andstrategic interests and its national security.

Salient Features of the Bill

• Regular tax, interest, penalty, prosecution regime for undisclosed foreignincome and assets of an ordinarily resident• No 16 year time-limit to tax foreign income/assets escaping assessment• Flat 30% tax on total undisclosed foreign income and asset (no surcharge oreducation cess)• No wealth tax and no interest under Section 234A, 234B or 234C• Penalty up to 3 times of tax computed• One-time limited window compliance scheme – Levy of tax, lower penalty ofup to 100% of tax computed and no prosecution

• Regular tax, interest, penalty, prosecution regime for undisclosed foreignincome and assets of an ordinarily resident• No 16 year time-limit to tax foreign income/assets escaping assessment• Flat 30% tax on total undisclosed foreign income and asset (no surcharge oreducation cess)• No wealth tax and no interest under Section 234A, 234B or 234C• Penalty up to 3 times of tax computed• One-time limited window compliance scheme – Levy of tax, lower penalty ofup to 100% of tax computed and no prosecution

• In case of an individual or HUF who are resident and ordinarily residentshall be liable to pay tax (‘Assessee’)• Meaning of ‘resident’ and ‘ordinarily resident’ shall be as per provisionsof Section 6 of the Income-tax Act (‘I-T Act’)• Assessee shall include every person who is deemed to be an assessee-in-default under I-T Act

Who is liable to pay tax?

• In case of an individual or HUF who are resident and ordinarily residentshall be liable to pay tax (‘Assessee’)• Meaning of ‘resident’ and ‘ordinarily resident’ shall be as per provisionsof Section 6 of the Income-tax Act (‘I-T Act’)• Assessee shall include every person who is deemed to be an assessee-in-default under I-T Act

• Undisclosed Asset Located Outside India

It is an asset (including foreign interest in an entity) located outside India Assessee may be owner or beneficial owner of such an asset It shall be deemed to be an undisclosed asset if assessee doesn’t givesatisfactory explanation about source of investment in such asset

• Undisclosed Foreign Income and AssetIt shall be aggregate of following: Amount of undisclosed income from a source outside India Fair market value of an undisclosed foreign asset

What is deemed to be an undisclosed foreignincome?

• Undisclosed Asset Located Outside India

It is an asset (including foreign interest in an entity) located outside India Assessee may be owner or beneficial owner of such an asset It shall be deemed to be an undisclosed asset if assessee doesn’t givesatisfactory explanation about source of investment in such asset

• Undisclosed Foreign Income and AssetIt shall be aggregate of following: Amount of undisclosed income from a source outside India Fair market value of an undisclosed foreign asset

Undisclosed foreign income or asset shall be: Foreign income which is not disclosed in return of income (original,revised or belated); Foreign income in respect of which return of income is not furnished;and Undisclosed foreign asset

What shall be subject to tax?

Undisclosed foreign income or asset shall be: Foreign income which is not disclosed in return of income (original,revised or belated); Foreign income in respect of which return of income is not furnished;and Undisclosed foreign asset

What is excluded from undisclosed foreignincome?Any variation in foreign income during assessment or re-assessmentunder following provisions of the I-T Act shall not be included inundisclosed foreign income:a) Sections 29 to 43C: Assessment of business profitsb) Sections 57 to 59: Assessment of income from other sourcesc) Section 92C: Transfer Pricing Provisions

Any variation in foreign income during assessment or re-assessmentunder following provisions of the I-T Act shall not be included inundisclosed foreign income:a) Sections 29 to 43C: Assessment of business profitsb) Sections 57 to 59: Assessment of income from other sourcesc) Section 92C: Transfer Pricing Provisions

We can understand this proposition with the following examples.Example 1: Assessee acquires a house property in a foreign country which is notdisclosed in the return of income. The fair market value of such an asset shall besubject to tax under this bill. Any income earned from such property which is notoffered to tax in the return of income shall also be charged to tax under this bill.Example 2: Assessee acquires a house property in a foreign country and disclosesit in the return of income. Any income earned from such property during theyear is offered to tax in the return of income. In this case nothing would betaxable under the bill. However, if assessee transfers the property during theyear and suppresses the full value of consideration and during assessment,Assessing Officer assesses the capital gains or income from house property at ahigher sum, the additional sum so assessed shall be chargeable to tax under thisbill.

What is excluded from undisclosed foreignincome? Cont’d…We can understand this proposition with the following examples.Example 1: Assessee acquires a house property in a foreign country which is notdisclosed in the return of income. The fair market value of such an asset shall besubject to tax under this bill. Any income earned from such property which is notoffered to tax in the return of income shall also be charged to tax under this bill.Example 2: Assessee acquires a house property in a foreign country and disclosesit in the return of income. Any income earned from such property during theyear is offered to tax in the return of income. In this case nothing would betaxable under the bill. However, if assessee transfers the property during theyear and suppresses the full value of consideration and during assessment,Assessing Officer assesses the capital gains or income from house property at ahigher sum, the additional sum so assessed shall be chargeable to tax under thisbill.

Example 3: Assessee acquires a house property in a foreign country anddiscloses it in the return of income. In this case nothing would be taxableunder the bill. However, if assessee earns income from such propertyduring the year but does not offer it to tax in the return of income in thiscase if Assessing Officer assesses the income from house property, thesum so assessed shall be chargeable to tax under this bill.

What is excluded from undisclosed foreignincome? Cont’d…

Example 3: Assessee acquires a house property in a foreign country anddiscloses it in the return of income. In this case nothing would be taxableunder the bill. However, if assessee earns income from such propertyduring the year but does not offer it to tax in the return of income in thiscase if Assessing Officer assesses the income from house property, thesum so assessed shall be chargeable to tax under this bill.

• No expenditure shall be allowed as deduction from undisclosed foreignincome or asset• No loss can be set-off against such an income or asset• Any income which has been assessed to tax under I-T Act shall bereduced from value of undisclosed foreign asset if asset is acquired fromsuch income.• Proportionate income, which was assessed to tax, shall be reduced fromFMV of foreign undisclosed asset being immovable property andremaining amount shall be taxable under the Bill

Computation Mechanism

• No expenditure shall be allowed as deduction from undisclosed foreignincome or asset• No loss can be set-off against such an income or asset• Any income which has been assessed to tax under I-T Act shall bereduced from value of undisclosed foreign asset if asset is acquired fromsuch income.• Proportionate income, which was assessed to tax, shall be reduced fromFMV of foreign undisclosed asset being immovable property andremaining amount shall be taxable under the Bill

Example:A foreign asset was acquired by an assessee in the financial year 2009-10for Rs. 50 lakhs. Out of total investment, Rs. 20 lakhs was assessed to tax.When the Assessing Officer identified the undisclosed asset in the year2017-18, the value of such asset was determined at Rs. 1 crore. In thiscase the amount chargeable to tax shall be computed after reducing theproportionate value of sum which was assessed to tax and invested in theforeign asset. It shall be Rs. 60 lakhs [Rs. 1 Crore less (Rs. 1 Crore X20/50)]

Computation Mechanism Cont’d…

Example:A foreign asset was acquired by an assessee in the financial year 2009-10for Rs. 50 lakhs. Out of total investment, Rs. 20 lakhs was assessed to tax.When the Assessing Officer identified the undisclosed asset in the year2017-18, the value of such asset was determined at Rs. 1 crore. In thiscase the amount chargeable to tax shall be computed after reducing theproportionate value of sum which was assessed to tax and invested in theforeign asset. It shall be Rs. 60 lakhs [Rs. 1 Crore less (Rs. 1 Crore X20/50)]

• Undisclosed foreign income of the previous year is taxable at flat rate of30%• FMV of undisclosed foreign asset shall be taxable in year in which itcomes to notice of Assessing OfficerNote: Nothing is mentioned in this Bill or the Finance Bill, 2015 about thelevy of surcharge and Education cess on the tax computed at the rate of30% on undisclosed foreign income or asset.

Charge and Rate of tax

• Undisclosed foreign income of the previous year is taxable at flat rate of30%• FMV of undisclosed foreign asset shall be taxable in year in which itcomes to notice of Assessing OfficerNote: Nothing is mentioned in this Bill or the Finance Bill, 2015 about thelevy of surcharge and Education cess on the tax computed at the rate of30% on undisclosed foreign income or asset.

• The Income-tax authorities shall be the authorities for the purpose ofthis bill• If assessee has no liability under the I-T Act, the tax authority shall beone which has jurisdiction of area where assessee resides or carries onits business• Tax authorities shall have same powers as are vested in a Court underCode of Civil Procedure, 1908• Tax authorities can make any inquiry or investigation even if noproceedings are pending before it

Tax Authorities

• The Income-tax authorities shall be the authorities for the purpose ofthis bill• If assessee has no liability under the I-T Act, the tax authority shall beone which has jurisdiction of area where assessee resides or carries onits business• Tax authorities shall have same powers as are vested in a Court underCode of Civil Procedure, 1908• Tax authorities can make any inquiry or investigation even if noproceedings are pending before it

• The Assessing Officer on receipt of information shall serve a noticerequiring assessee to produce such information and document as hemay require• Assessment order shall be made within a period of 2 years from the endof the financial year in which notice was issued (except in a fewcircumstances, i.e., assessment pursuant to order of Tribunal, HighCourt, etc.)

Assessment

• The Assessing Officer on receipt of information shall serve a noticerequiring assessee to produce such information and document as hemay require• Assessment order shall be made within a period of 2 years from the endof the financial year in which notice was issued (except in a fewcircumstances, i.e., assessment pursuant to order of Tribunal, HighCourt, etc.)

Penalty

Nature of default Penalty ProsecutionNon-disclosure of foreign income and asset [Clause 41]If tax has been computed in respect ofundisclosed foreign income and asset 3 times of tax payableon undisclosed income -

Failure to furnish return of income [Clause 42/43]Failure to furnish return of income [Clause 42/43]If assessee does not disclose foreign asset orincome in his return or fails to furnish returnunder I-T Act.Note: No penalty shall be levied under Clause 42 or 43 ifany foreign asset, being one or more bank accounts have anaggregate balance which does not exceed Rs. 5 Lakh at anytime during the previous year.

Rs 10 lakhs( In addition to penaltylevied under clause41)6 months to 7 yearsand fine if default iswillful

Penalty Cont’d…

Nature of default Penalty ProsecutionWillful attempt to evade tax [Clause 51]If assessee willfully attempts to evade any tax,penalty or interest. - 3 years to 10 years

If a person willfully attempts to evade any tax,penalty or interest. - 3 months- 10 yearsIf a person willfully attempts to evade any tax,penalty or interest. - 3 months- 10 yearsDefault in payment of tax arrear [Clause 44]Continuing default by assessee in makingpayment of taxNote: An assessee shall not cease to be liable to any penaltymerely by reason that before the levy of penalty he has paidthe tax.

Amount of tax arrear -

Penalty Cont’d…

Nature of default Penalty ProsecutionFailure to furnish documents before tax authority [Clause 45]If any person fails to:a) answer any question asked by tax authorityb) sign a statement which he is legally bound todo soc) attend or to give evidence or produce booksof account

Rs. 50,000 to Rs.2,00,000 -If any person fails to:a) answer any question asked by tax authorityb) sign a statement which he is legally bound todo soc) attend or to give evidence or produce booksof accountFurnishing of false statement in verification [Clause 52]If a person makes a false statement in verificationor delivers false accounts or statement - 6 months to 7 yearsand fine

Penalty Cont’d…

Nature of default Penalty ProsecutionPunishment for abatement [Clause 53]Abetment to make and deliver false return,account, statement or declaration relating to taxpayable - 6 months to 7 yearsand fineAbetment to make and deliver false return,account, statement or declaration relating to taxpayable

Punishment for second and subsequent offences [Clause 58]If a person, who has been convicted for anoffence, is again convicted for an offence underthis Bill Rs. 5 lakhs to Rs. 1Crore 3 years to 10 years

The bill provides for an one time compliance opportunity during the specified periodto persons who have any undisclosed foreign asset. However, the Government hasrefused to call it as an amnesty scheme as no immunity from penalty is being offered(although lower penalty is charged) and only immunity from prosecution is offered.The striking points in this regard are as under:• Any person may make a declaration in respect of any undisclosed assets locatedoutside India which have been acquired from income chargeable to tax for anyassessment year prior to assessment year 2016-17.• A flat rate of tax at 30% on value of such undisclosed asset and an equal of amountof penalty would be recovered from a person availing of this opportunity. However,immunity from prosecution is being offered to such person.• No interest under Section 234A, 234B and 234C of I-T Act.

One time compliance opportunity

The bill provides for an one time compliance opportunity during the specified periodto persons who have any undisclosed foreign asset. However, the Government hasrefused to call it as an amnesty scheme as no immunity from penalty is being offered(although lower penalty is charged) and only immunity from prosecution is offered.The striking points in this regard are as under:• Any person may make a declaration in respect of any undisclosed assets locatedoutside India which have been acquired from income chargeable to tax for anyassessment year prior to assessment year 2016-17.• A flat rate of tax at 30% on value of such undisclosed asset and an equal of amountof penalty would be recovered from a person availing of this opportunity. However,immunity from prosecution is being offered to such person.• No interest under Section 234A, 234B and 234C of I-T Act.

• Amount of undisclosed investment in an asset located outside India shall not beincluded in the total income of the assessee for any assessment year under theIncome-tax Act.• Any person availing of this opportunity shall not be entitled to reopen anyassessment or reassessment made under the Income-tax Act or wealth-tax Actand, further, he can not seek any appeal, reference or other proceedings inrelation to any such assessment or reassessment. In other words, declaration somade would not affect the finality of completed assessment.• Tax and penalty so paid shall not be refundable.• Any declaration made by misrepresentation or suppression of fact shall bedeemed as void-ab-initio.

One time compliance opportunity Cont’d…

• Amount of undisclosed investment in an asset located outside India shall not beincluded in the total income of the assessee for any assessment year under theIncome-tax Act.• Any person availing of this opportunity shall not be entitled to reopen anyassessment or reassessment made under the Income-tax Act or wealth-tax Actand, further, he can not seek any appeal, reference or other proceedings inrelation to any such assessment or reassessment. In other words, declaration somade would not affect the finality of completed assessment.• Tax and penalty so paid shall not be refundable.• Any declaration made by misrepresentation or suppression of fact shall bedeemed as void-ab-initio.

• Declaration so filed shall not be considered as an evidence against thedeclarant for initiating penalty or prosecution proceedings under theIncome-tax Act, Wealth-tax Act, 1957, Foreign Exchange ManagementAct, 1999, Companies Act, 2013 or the Customs Act, 1962.• No wealth-tax shall be levied in respect of asset disclosed in thedeclaration form. Further, where a declaration is made by a firm, assetsso declared shall not be taken into account in computing the net wealthof any partner or in determining the value of the interest of any partnerin the firm.

One time compliance opportunity Cont’d…

• Declaration so filed shall not be considered as an evidence against thedeclarant for initiating penalty or prosecution proceedings under theIncome-tax Act, Wealth-tax Act, 1957, Foreign Exchange ManagementAct, 1999, Companies Act, 2013 or the Customs Act, 1962.• No wealth-tax shall be levied in respect of asset disclosed in thedeclaration form. Further, where a declaration is made by a firm, assetsso declared shall not be taken into account in computing the net wealthof any partner or in determining the value of the interest of any partnerin the firm.

The following persons will not be able to get the benefit of one timecompliance opportunity:• Any person in respect of whom an order of detention has been madeunder the Conservation of foreign Exchange and Prevention ofSmuggling Activities Act, 1974 (Subject to certain conditions)• Any person who is subject to prosecution for any offence which ispunishable under Chapter IX or Chapter XVII of the Indian Penal Code,the Narcotic Drugs and Psychotropic Substances Act, 1985, the UnlawfulActivities (Prevention) Act, 1967, the Prevention of Corruption Act,1988.

Persons not entitled to avail of one timecompliance opportunity

The following persons will not be able to get the benefit of one timecompliance opportunity:• Any person in respect of whom an order of detention has been madeunder the Conservation of foreign Exchange and Prevention ofSmuggling Activities Act, 1974 (Subject to certain conditions)• Any person who is subject to prosecution for any offence which ispunishable under Chapter IX or Chapter XVII of the Indian Penal Code,the Narcotic Drugs and Psychotropic Substances Act, 1985, the UnlawfulActivities (Prevention) Act, 1967, the Prevention of Corruption Act,1988.

• Any person notified under section 3 of the Special Court (Trial of OffencesRelating to Transactions in Securities) Act, 1992.• Any person against whom the notice of assessment has already been issuedunder the I-T Act and proceeding is pending before the tax authority.• Any person against whom the time-limit for furnishing of notice of assessmenthas not expired pursuant to search, requisition or survey, as the case may be,carried out under I-T Act.• Any person against whom information has been received under DTAA inrespect of such undisclosed asset (in case of undisclosed bank account, it mayor may not have any balance).• In other words, one-time opportunity is for ‘black money’ and not for ‘redmoney’

Persons not entitled to avail of one timecompliance opportunity Cont’d…

• Any person notified under section 3 of the Special Court (Trial of OffencesRelating to Transactions in Securities) Act, 1992.• Any person against whom the notice of assessment has already been issuedunder the I-T Act and proceeding is pending before the tax authority.• Any person against whom the time-limit for furnishing of notice of assessmenthas not expired pursuant to search, requisition or survey, as the case may be,carried out under I-T Act.• Any person against whom information has been received under DTAA inrespect of such undisclosed asset (in case of undisclosed bank account, it mayor may not have any balance).• In other words, one-time opportunity is for ‘black money’ and not for ‘redmoney’

The Central Government may enter into an agreement with theGovernment of any other country or specified territory: to avoid double taxation; for exchange of information for prevention of evasion or avoidance oftax on undisclosed foreign income; for investigation of cases of evasion or avoidance of tax onundisclosed foreign income; for recovery of tax; or for carrying out any other purpose of the proposed legislation.

Agreement with foreign countries

The Central Government may enter into an agreement with theGovernment of any other country or specified territory: to avoid double taxation; for exchange of information for prevention of evasion or avoidance oftax on undisclosed foreign income; for investigation of cases of evasion or avoidance of tax onundisclosed foreign income; for recovery of tax; or for carrying out any other purpose of the proposed legislation.

Notice, summons, requisition, order or any other communication under the proposedlegislation may be furnished to the person named therein by any of the following modes:a) Postb) Courierc) Fax messaged) E-mailA notice would be deemed to have been duly served if the person has appeared in anyproceeding or cooperated in any inquiry relating to an assessment, except in case wheresuch person has raised objection before the completion of assessment.

Manner of service of notice, summons, requisition,order, etc.

Notice, summons, requisition, order or any other communication under the proposedlegislation may be furnished to the person named therein by any of the following modes:a) Postb) Courierc) Fax messaged) E-mailA notice would be deemed to have been duly served if the person has appeared in anyproceeding or cooperated in any inquiry relating to an assessment, except in case wheresuch person has raised objection before the completion of assessment.

Miscellaneous

All information contained in any statement or return made orfurnished under the I-T Act or obtained or collected for the purposesof the said Act may be used for the purposes of this legislation. The Bill provides for inclusion of offence of tax evasion as a scheduledoffence under PMLA. All information contained in any statement or return made orfurnished under the I-T Act or obtained or collected for the purposesof the said Act may be used for the purposes of this legislation. The Bill provides for inclusion of offence of tax evasion as a scheduledoffence under PMLA.

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