CA Ashwani Rastogi
Committing to carry forward the fight against black money, Prime Minister Narendra Modi, in his address to the nation on the 69th Independence Day, said “So far, Rs. 6,500 crore of undisclosed income have been declared, which will be used for the welfare of the people.”
Why should anyone keep money abroad? All the more when they have to pay heavy amount just to park their funds outside India particularly in Swiss Bank as they charge hefty amounts even for a deposit. That essentially means that only those having undisclosed source of income popularly known as black money would be relying upon such costly options.
Another supporting fact to this is that India has the one of the highest rate of return approximately about 15-18% annually, way above global standards. And above all in recently RBI has announced Liberalised Remittance Scheme(LRS) allowing upto $250,000 per person per year as foreign investment. Similarly there lot more that can be allowed as foreign investment through various routes.
Target Black Money
So, are there benefits of the one time amnesty under Black Money Act, specially if someone has huge amount of cash stashed abroad and has never been declared in his or her IT returns in all these years? The answer would be definitely yes, if you are ready to part with 60% (30% tax and equivalent amount of penalty) of the fair market value(FMV) of the asset till 30th September 2015. And, what one gets in return is a clean chit from the government.
The best feature of this one time window is that there are no questions asked what-so-ever in relation to your foreign undisclosed assets. The only consideration that will count is the FMV of such an asset and a lump-sum tax payment.
To explain the stringent clauses in the Act here are some illustrations:
I have some properties in USA which were actually inherited from my father in 1981 originally worth $ 1,00,000 (present FMV–$ 10,00,000) but now I fail to satisfy my assessing officer(AO) on the source of that property as per the provisions of this particular act.(BMA requires you to explain how my father owned such a property) Hence, the one time amnesty scheme would be beneficial for me. I just have to pay 60% of the present value. Here I may not have any choice as now Income Tax Act allows the AO to go back upto 16 years in case tax evasion is suspected in respect of foreign assets.
If I as an American citizen became resident of India in 2010 all my global incomes would be liable to Income tax since that particular year. However, I might have a liability under the latest BMA. In case I have a million dollar deposit with a US bank dating back to pre-2010 period and I have not disclosed it in my returns in India. I might not be able to explain my situation to the AO, as procuring old bank statements, receipts etc might be a difficult if not impossible task. Under the provisions of BMA if I am unable to prove source of my income while I was not a resident, I will still be liable to tax on all credit entries in my foreign bank account.
Important Dates for Amnesty:
The Central Government has notified 30th September, 2015, as the date on or before which a person may make a declaration in respect of an undisclosed asset located outside India under the compliance provisions of the Black Money Act.
The last date by which a person must pay the tax and penalty in respect of the undisclosed foreign assets so declared shall be the 31st December, 2015.
Computation of tax on UFIA
|Computation of total UFIA|
|Income from source located outside India (foreign income ‘FI’) which has not been disclosed in IT Return||100|
|FI in respect of which no IT return has been filed||200|
|FMV of UFA (no explanation or unsatisfactory explanation about the source of income has been provided – Section 4(3))||300 including appreciation or depreciation|
Coming back to what Prime Minister quotes, it seems to be a good figure, which is expected to grow many folds by September 30th, 2015. However, there are a few irritants like no relief has been given against double taxation under UFIA and corresponding laws in foreign jurisdiction. CBDT has already released first set of FAQ’s on related issues, second set is also expected soon to clear the grey areas in the law.
The moot question is whether this is a good enough opportunity? Theoretically speaking it is a decent product. As for a 10 lakh dollar asset abroad a 6 lakh dollars tax & penalty is much better than paying 12 lakh with imprisonment and other harassment.
On a lighter note as you might be thinking of paying 60% on FMV—I feel many with hefty liabilities may be thinking of finding the way-out for immigration abroad instead of getting a clean chit from India under BMA.