An Analysis of the Undisclosed Foreign Income and Assets (Imposition of Tax) Act, 2015

To steer the attention of public away from the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, the government has decided to shift its focus from foreign black money to domestic black money in the union budget 2016-2017. However, the idea of bringing back the black money seems turning out to be a mirage. The Act, which came into force on 1st July 2015, provides for stringent provisions and penalty that had been welcomed as well as censured by the critics. The law provides for separate taxation of any undisclosed income from foreign assets; such income will henceforth not be taxed under the Income Tax Act, 1961. It applies to persons who are ordinarily residents in India. The 90-day compliance window has been provided which ended on 30th September 2015 for people to pay tax and penalty of 60% on undisclosed overseas assets and come clean.

The law provides for the taxation of undisclosed foreign income and assets at a flat rate of 30%. No exemptions, deductions, set-off or carry-forward of losses under the provisions of the Income Tax Return filing Act would be allowed.

Non-disclosure of incomes or assets located out of India will attract a penalty equal to three times the tax payable, that is, 90% of the income or the value of the non-disclosed asset. This would be in addition to the 30% tax payable.

The offence is made non-compoundable, and the offenders will not be permitted to approach the Settlement Commission. In case of non-filing of returns or non-disclosure of income or assets in the return, the penalty provided is Rs 10 lakh.

Second and subsequent offences will be punishable with rigorous imprisonment of between three and 10 years with a fine of up to Rs 1 crore.

The Act also proposes amendments to the Prevention of Money Laundering Act, 2002. 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.

Holders of assets will have to disclose details of the location of bank accounts, date of opening and sum of all credits in the prescribed format. Holders will have to make disclosures with regard to immovable property, artistic works, securities held or any other assets along with their fair market value. With regard to jewellery, disclosures have to be made about the purity, quantum and value of gold, diamond and other precious metals.

The compliance window under the Black Money Act closed on 30th September 2015, and saw 638 declarations of foreign income and assets worth Rs. 3,770 crore only.

Though anything which aids the government in getting back what legitimately belongs to the people of this country is an appreciated endeavour but the Act still lacks clarity, and consists of significant grey areas along with a dire need for proper implementation of policies. The government can make efforts more than just haggling with the foreign banks over the requisite information relating to black money stashed abroad. The black money is neither static nor contrary to the popular belief lying in the Swiss banks.

One of the shortcomings is that very few tax havens agreed to reveal the information, and there is a possibility that account holders may transfer their funds to other tax havens.  The biggest loophole is that the Act is applicable only when the government discovers any undisclosed assets, and hence, the question is how the government can penalize an unknown person and there are even greater chances of innocent people being abused by the misuse of this law.

Besides Indians have plenty of other ways to channelize their ill-earned funds like they have invested chunks of black money in the real estate in UAE and UK or the upsurge in the FDI business services and FII’s also represents the return of black money through legal ways. The law also does not seek to tackle the issue of layering.  The government should rather focus on the trail through which ventures are being made to become acquainted with the true nature of the investments.  This further answers the query why only 638 declarations were made during the one-time compliance window.

Source of content:- http://www.letscomply.com/knowledge-hub/2016/03/analysis-undisclosed-foreign-income-assets-imposition-tax-act-2015/