CA Ashwani Rastogi

ASHWANI RASTOGIThe Central Government has notified the 30th day of 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 (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (‘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 day of December, 2015.

Detailed features of the compliance window are notified separately.

Source Press dt. 1st July 2015

Now lets us understand and see highlight of the bills and One-time opportunity for self-declaration to be made

  • Act is effective from 1 April 2016 onwards (Assessment Year 2016-17) and extends to whole of India
  • Applicable to all persons resident in India. In case of Individuals, it applies to ordinary resident under ITA
  • Flat 30% tax rate (without surcharge and cess) on the value of total undisclosed foreign income and asset plus penalty 90% additional to tax however penalty reduced to 30% if self-declaration made in one time opportunity by 30th September
  • if Declaration made in respect of UFAs and pay tax on it @ 30% plus penalty (equal to tax) i.e. total 60%
  • One time compliance scheme window (with a time limit to be notified) for disclosing any UFA acquired from income chargeable to tax under ITA for any assessment year prior to AY 2016-17*
  • Merely an opportunity for persons to come clean and become compliant before the stringent provisions of the new Act come into force
  • Tax will be on value of UFA as on the date of enactment of this new legislation
  • No exemption, deduction or set-off of any carried forward losses
  • Amount of UFA so declared shall not be included in the total income of any assessment year in ITA
  • No reopening of assessment due to disclosure under this scheme – Declaration will not affect finality of completed assessment
  • Contents of declaration cannot be used as evidence for imposing penalties under any other law or for prosecution under ITA, Wealth tax, FEMA, Companies Act 2013, or Customs Act 1962
  • No Wealth Tax on UFA declared. Assets declared by firm shall not be considered in computing net wealth of individual partner or value of interest of any partner

blackmoneyComputation of tax on UFIA

♠ UFIA will be taxed @ 30% – no surcharge and cess

♠ Tax will be charged on its value in the previous year in which UFIA same is noted by AO

♠ Value of UFA means fair market value of an asset ‘including financial interest in any entity) in the previous year in which it comes to AO’s notice– method of valuation to be prescribed

Manner for Computation of total UFIA (Section 4)

Computation of total UFIA
Income from source located outside India (foreign income ‘ FI’ ) which has not been disclosed in IT Return X
FI in respect of which no IT return has been filed X
FMV of UFA (no explanation or unsatisfactory explanation about the source of income has been provided – Section 4(3)) X

♠ If UIFA is taxed under this new legislation, it will not be taxed under ITA

♠ Any variation made to the foreign sourced income as per section 29 to 43C or section 57 to 59 or section 92C of the ITA will not be included in total undisclosed foreign income

♠ Hardship to the assessee as tax and penalties proposed to be calculated at current value of assets instead of original purchase price.

No provision granting relief against double taxation of income under UFIA Act and corresponding law in foreign jurisdiction

♠ However, Finance Bill 2015 proposes that the Enforcement Director under FEMA can directly seize equivalent value of Indian assets (without asking any questions) and merely on the reason to believe or suspicion – similar amendments are also proposed under Prevention of Money-laundering Act, 2002 (PMLA) vide Finance Bill 2015

–        What is Income Tax provision for filing of return? Currently, ROR is mandatorily required to file the IT return even if total income does not exceed the maximum amount not chargeable to tax if he has any asset (including any financial interest in any entity) located outside India or signing authority in an account outside India.

Also Disclosure requirement of Foreign Assets is must that to be reported in Schedule FA of IT Return w.e.f. AY 2012-13 in ITR Form.

Illustration 1:

Mr. Y acquired foreign asset (immovable property) in the assessment year 2010-11 for Rs.120 lacs. Out of the total investment, Rs.80 lacs was assessed to tax in an earlier year. In AY 2007-08, the AO identified the undisclosed asset having value of Rs.4 crore for which no explanation was provided

Solution:

  • Now FMV of UFA (no explanation provided or explanation not satisfactory) Rs. 4 Crore
  • For the purpose of Amount chargeable to tax under UFIA Act amount reduced by:
  • Income which has been assessed to tax for any assessment year under the ITA prior to relevant AY in which UFIA applies (Rs.4crore X 0.80 lacs / 1.20 lacs)= Rs. 2.67 crore
  • Accordingly Amount chargeable to tax under UFIA Act Rs. 4 crore less Rs. 2.67 Crore = Rs. 1.33 crore

Illustration 2:

Mr. X acquired share of foreign company, in the assessment year 2011-12 for 40 lacs. AO identified the undisclosed asset in the assessment year 2018-19, the FMV of such asset is determined at Rs.60 lacs. Shares were acquired from the income assessed to tax of Rs.16 lacs:

Solution:

  • FMV of UFA in respect of which no explanation or unsatisfactory explanation about the source of income has been given Rs. 60 lacs
  • For the purpose of Amount chargeable to tax under UFIA Act amount reduced by the amount of Income which has been assessed to tax for any assessment year under the ITA prior to relevant AY in which UFIA applies Rs. 16 lacs
  • Accordinly Amount chargeable to tax under UFIA Act Rs. 60 lacs less 16 lacs, Net chargeable to tax is Rs. 44 lacs

(I can be reached at ashwani.rastogi.ca@gmail.com for any queries, suggestions and comments)

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