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 (1st April 2015 till 31st 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.
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Compliance
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Provision reference
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Procedure/ Manner of
compliance
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Penalty
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1.
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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
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Section
59, 62
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(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.
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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
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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.
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;
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/
Reference: http://www.itatonline.org/info/index.php/download-the-undisclosed-foreign-income-and-assets-imposition-of-tax-bill-2015/
