Undisclosed Foreign Income and Assets (Imposition of Tax) Act, 2015 - Brief overview of compliance & penalties

Compliance & Penalties

The Bill has been passed by both the Houses of Parliament and will become an Act once it receives accent from the President of India. This was introduced as a measure to curb black money. “Black money” is ordinarily expressed as bill to impose tax on evaded income. The main objective of the Bill is to impose tax on any undisclosed foreign income and assets and the procedure for dealing with such income and assets. The provisions of this new legislation after being enacted will come into force from Assessment year 2016-17 i.e. financial year 2015-16 (1^st April 2015 till 31^st March, 2016)

Who is an ‘assessee’ defined under this law? An assessee is a person, resident other than not ordinarily resident in India within the meaning of clause (6) of section 6 of the Income-tax Act, by whom tax in respect of undisclosed foreign income and assets, or any other sum of money, is payable under this Act and includes every person who is deemed to be an assessee in default under this Act.

Therefore, the provisions of the bill are not applicable to:

·        an individual who has been a non-resident in India in 9 out of 10 previous years preceding that year, or has during the 7 previous years preceding that year been in India for a period of, or previous amounting in all to, 729 days or less; and

·        a Hindu Undivided Family whose manager has been a non-resident in India in 9 out of 10 previous years preceding that year, or has during the 7 previous years preceding that year been in India for a period of, or previous amounting in all to, 729 days or less

To understand the applicability of this law, let’s find out what “undisclosed asset located outside India” and “undisclosed foreign income and asset” means.

“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 and “undisclosed foreign income and asset” means the total amount of undisclosed income of an assessee from a source located outside India and the value of an undisclosed asset located outside India, referred to in section 4, and computed in the manner laid down in section 5.

Chargeability of Tax – Every assessee for every assessment year commencing on or after the 1st day of April, 2016, will be imposed a tax @ 30% of such undisclosed income and asset in respect of his total undisclosed foreign income and asset of the previous year, subject to the provisions of this Act.

Provided that an undisclosed asset located outside India is charged to tax on its value in the previous year in which such asset comes to the notice of the Assessing Officer.

Scope of total undisclosed foreign income and asset

It means,-

i. an income from a source located outside India, which has not been disclosed in the return of income furnished within the time specified in Explanation 2 to sub-section (1) or under sub-section (4) or sub-section (5) of section 139 of the Income-tax Act, 1961;

ii. an income, from a source located outside India, in respect of which a return is required to be furnished under section 139 of the Income-tax Act but no return of income has been furnished within the time specified in Explanation 2 to sub-section (1) or under sub-section (4) or sub-section (5) of section 139 of the said Act; and

iii. the value of an undisclosed asset located outside India.

Tax Compliance for undisclosed foreign income and assets:

Chapter VI (provision 59 to 63) talks about the various compliances to be adhered by any person as applicable to them under this law.

SL. No.	Compliance	Provision reference	Procedure/ Manner of compliance	Penalty
1.	A declaration to be filed with the Principal Commissioner or the Commissioner in respect of any undisclosed asset located outside India and acquired from income chargeable to tax under the Income-tax Act for any assessment year prior to the assessment year beginning on 1st day of April, 2016,- i. for which he has failed to furnish a return under section 139 of the Income-tax Act; ii. which he has failed to disclose in a return of income furnished by him under the Income-tax Act before the date of commencement of this Act; iii. which has escaped assessment by reason of the omission or failure on the part of such person to make a return under the Income-tax Act or to disclose fully and truly all material facts necessary for the assessment or otherwise	Section 59, 62	(a) In such form and be verified in such a manner as may be prescribed. (b) Declaration to be signed: i. where the declarant is an individual, then by individual himself & if absent from India, by some person duly authorized by him in this behalf & in case an individual is mentally incapacitated from attending to his affairs, by his guardian or by any other person competent to act on his behalf; ii. where the declarant is a HUF, by the Karta, and in his absence from India or if mentally incapacitated from attending to his affairs, then by any other adult member of such family; iii. where the declarant is a company, by the managing director, or if due to any unavoidable reason such managing director is not able to sign the declaration, or if there is no managing director, then by any director; iv. where the declarant is a firm, then by the managing partner, or due to any unavoidable reason such managing partner is not able to sign the declaration, or if there is no managing partner, then by any partner who is not a minor; v. where the declarant is any other association, by any member of the association or the principal officer; vi. where the declarant is any other person, by that person or by some other person competent to act on his behalf.	100% of such tax charged under this provision (i.e. 30% of the value of such undisclosed asset on the date of the commencement of this Act

 Compliance by the declarant:

(1) If a declaration has been made in respect of an asset or in the capacity as a representative assessee in respect of the asset of any other person, no other declaration is to be made, and if made, it would be deemed to be void.

(2)  The tax or penalty in respect of the undisclosed asset located outside India to be paid on or before a date as notified by the Central Government in the official Gazette.

(3) Proof of payment of tax and penalty to be filed on or before such notified date with the Principal Commissioner or the Commissioner before whom the declaration was made.

(4) If tax in respect of the declaration is not made on or before such notified date, it would be deemed that declaration under this law have not been made.

(5) The amount of undisclosed investment in an asset located outside India must not be included in the total income for any assessment year under the Income-tax Act, 1961 if payment of tax/ or the penalty had been made by such notified date.

(6) Reopening of any assessment or reassessment made under the Income-tax Act or the Wealth-tax Act, 1957 or claim any set off or relief in any appeal, reference or other proceeding in relation to any such assessment or reassessment in respect of undisclosed asset located outside India declared or any amount of tax paid thereon is not allowed.

(7) Any amount of tax or penalty paid in pursuance of the declaration made is not refundable.

(8) If a declaration has been made by misrepresentation or suppression of facts, such declaration will be considered as void and shall be deemed never to have been made under this Chapter.

(9) Where the undisclosed asset located outside India is represented by cash (including bank deposits), bullion or any other assets specified in the declaration—

(i) in respect of which a return under the Wealth-tax Act, 1957 for the assessment year commencing on or before the 1st day of April, 2015 has not been filed; or

(ii) which have not been shown in the return of net wealth furnished for the said assessment year or years; or

(iii) which have been understated in value in the return of net wealth furnished for the said assessment year or years, then, notwithstanding anything contained in the Wealth-tax Act, 1957 or any rules made there-under,—

(a) wealth-tax is not payable in respect of the assets referred to in SL. No. (i) and (ii), such assets are not included in the net wealth for the said assessment year or years;

(b) the amount by which the value of the assets referred to in clause (iii) has been understated in the return of net wealth for the said assessment year or years, to the extent such amount does not exceed the voluntarily disclosed income utilized for acquiring such assets, shall not be taken into account in computing the net wealth of the declarant for the said assessment year or years.

 Penalties for non-compliance:

The law has laid down very stringent penalties for non-compliance of the provisions related to undisclosed foreign income assets. Briefly, the penalty provisions (Section 41 to 47) are stated here-under:

       A. Where tax has been computed under section 10 in respect of undisclosed foreign income and asset, a penalty @300% of the tax assessed.

       B.  If a person, being a resident other than not ordinarily resident in India within the meaning of clause (6) of section 6 of the Income-tax Act, fails to furnish return before the end of the relevant assessment year for any previous year, as required under sub-section (1) of section 139 of the Income-tax Act or by the provisos to that sub-section, in respect of:

 i. any asset held (including financial interest in any entity) located outside India as a beneficial owner or otherwise; or

           ii. was a beneficiary of any asset (including financial interest in any entity) located                  outside India; or

iii. had any income from a source located outside India,-

Assessing officer may impose Rs. 10,00,000/- by way of penalty.

 Note – This is not applicable in respect of an asset, being one or more bank accounts having an aggregate balance not exceeding a value equivalent to Rs. 5,00,000/- at any time during the previous year.

          C.     Penalty for default in payment of tax arrear and in case of continuing default penalty of an amount equal to the amount of tax arrears will be imposed.

          D.     Penalty will not cease to apply merely by a reason of the fact that tax has been paid before the levy of such penalty.

       E.   Penalty of minimum Rs. 50,000/- extending up to Rs. 2,00,000/- is imposed upon failing to:

i.      i.    answer any question put by a tax authority in the exercise of its powers under this Act;

  ii.   sign any statement made in the course of any proceedings under this Act which a tax authority may legally require you to sign;

     iii. attend or produce books of account or documents at the place or time, if required to attend or give evidence or produce books of account or other documents, at certain place and time in response to summons issued under section 8.

Note:

The Tax authority, before imposing any penalty will issue a notice, to show cause as to why the penalty should not be imposed.

The notice is issued either,-

during the pendency of any proceedings under this Act for the relevant previous year, in respect of penalty referred to in section 41; or

within 3 years from the end of the financial year in which the default is committed in respect of penalties referred to in section 45.

No order imposing a penalty is made unless an opportunity of being heard is given by the assessing authority.

Prosecutions:

(1) Willful attempts in any manner to evade any tax, penalty or interest chargeable or imposable under this Act, is punishable with rigorous imprisonment for a term not be less than 3 years extending up to 10 years with fine.

(2) Willful attempts in any manner to evade payment of any tax, penalty or interest under this Act, without prejudice to any penalty that may be imposable on under any other provision of this Act, is punishable with rigorous imprisonment for a term which not less than 3 months extending up to 3 years and in the discretion of the court, may also be liable to fine.

Note - For the purposes of this section, “a wilful attempt to evade any tax, penalty or interest” chargeable or imposable under this Act or the payment thereof includes a case where any person—

possess or control any books of account or other documents (being books of account or other documents relevant to any proceeding under this Act) containing a false entry or statement; or

makes or causes to be made any false entry or statement in such books of account or other documents; or

willfully omits or causes to be omitted any relevant entry or statement in such books of account or other documents; or

causes any other circumstance to exist which will have the effect of enabling such person to evade any tax, penalty or interest chargeable or imposable under this Act or the payment thereof.

(3) Making a statement in any verification under this Act or under any rule made there-under, or delivers an account or statement which is false, which is known or believed to be false, or does not believe to be true, is punishable with rigorous imprisonment for a term of minimum 6 months extending up to 7 years and with fine.

(4) If abetted or induced in any manner another person to make and deliver an account or a statement of declaration relating to tax payable under this Act which is false and which is either known to be false or does not believed to be true or to commit an offence of willful attempt to evade tax, is punishable with rigorous imprisonment for a term of minimum 6 months extending up to 7 years with fine.

(5) If a resident other than not ordinarily resident in India within the meaning of clause (6) of section 6 of the Income-tax Act, at any time during the previous year, hold any asset (including financial interest in any entity) located outside India as a beneficial owner or otherwise, or was a beneficiary of such asset or had income from a source outside India and willfully fails to furnish in due time the return of income which is required to be furnished under sub-section (1) of section 139 of that Act, will be punished with rigorous imprisonment for a term of minimum 6 months extending up to 7 years and with fine.

(6) If a resident, other than not ordinarily resident in India within the meaning of clause (6) of section 6 of the Income-tax Act, has furnished the return of income for any previous year under sub-section (1) or sub-section (4) or sub-section (5) of section 139 of that Act, willfully fails to furnish in such return any information relating to an asset (including financial interest in any entity) located outside India, held as a beneficial owner or otherwise or in which was a beneficiary, at any time during such previous year, or disclose any income from a source outside India, will be punished with rigorous imprisonment for a term of minimum 6 months extending up to 7 years and with fine.

In short, the new legislation will apply to all persons resident in India and holding undisclosed foreign income and assets. Such persons may file a declaration before the specified tax authority within a specified period, followed by payment of tax @ 30% and an equal amount by way of penalty.

Reference: http://www.itatonline.org/info/index.php/download-the-undisclosed-foreign-income-and-assets-imposition-of-tax-bill-2015/