Fundmaster.in presents The Undisclosed Foreign Income and Assets Bill, 2015 By CA Abhishek Murali CA Divya Sukumar

CONTENTS OF THE PRESENTATION  Jurisprudence of the Bill (The Evolution and Why it has been proposed)  Key Highlights of The Bill  Author’s Insights on the Bill  Scope and Definitions  Rate of Taxes  Assessment Proeceedings  Penalty and Prosecution under this Bill  Compliance Scheme  Other Laws read in concert with this Bill  Questions or Guidance – FAQ Contact

Jurisprudence of the proposed legislation  India is going through a revolutionary decade where there has been strong moves to bring black money into circulation  The Honourable Finance Minister, in this pursuit, announced in his 2015 Budget Speech that a new comprehensive law will be introduced to deal with the black money stashed abroad  On 20 th March, 2015, the Undisclosed Foreign Income and Assets(Imposition of Tax) Bill was introduced  The new legislation provides for separate taxation of any undisclosed income in relation to foreign assets under the Income Tax, guided by this new legislation

Key Highlights of the Bill (1/2)  Tax, interest, penalty and prosecution for undisclosed foreign income and assets of Resident and Ordinarily Resident  No time limit for foreign income/assets escaping assessment  Flat rate of tax on any undisclosed foreign income and asset. No exemption, deduction or set-off of carried forward losses will be allowed against such incomes  Severe penalty up to 3 times of the tax payable, in addition to the actual tax payable  Penalty of Rs.1 lakh for non-filing of return or not furnishing complete details of foreign assets

Key Highlights of the Bill (2/2)  The bill proposes enhanced type of prosecution for various violations including rigorous imprisonment from 3 to 10 years  One time compliance opportunity for a limited time – 30% tax and penalty of the same amount. No prosecution.

Fundmaster Author’s Insights (1/2)  The move to bring back Black Money from abroad was political promise and a goal of the current Government. Once the Bill is passed in both houses(with necessary changes to the Draft) the President will assent to the same before it becomes a Law  This is the ideal time for all Residents who have studied abroad and have returned or have lived abroad and have returned, to review their investments and assets(including bank balances) that they might have outside India  The existing Income Tax law requires foreign assets to be disclosed, however, the proposed legislation could dole of serious punishment for negligence on the part of the Assesse  Assesses are advised to disclose any foreign assets that they may own(including part ownership) outside India

Fundmaster Author’s Insights (2/2)  A slew of Expatriate employees now live in India and normally border on becoming a Resident and Ordinarily Resident. These employees are advised to keep the list of their bank accounts and other assets ready to disclose the same when the obligation arises  Even if the Expatriate or other Assesse does not have any taxable income in India, he or she is under an obligation to disclose their assets and incomes outside India, and file their return of income, if they are a Resident and Ordinarily Resident  The author expects that there will be changes made to the Bill to give more clarity to certain situations that will pose a practical difficulty in disclosure, since the Bill is still under deliberation is a little rough around the edges. However, one must not underestimate the impact this law will have on foreign asset disclosure

Scope and Definitions  Applicable to Residents who are Ordinarily Residents  What is an Undisclosed Asset and Undisclosed Income  Undisclosed Foreign Asset: An asset(including bank balances) located outside India which the assesse owns and does not disclose or fails to show the source to purchase the asset. The Fair Market Value of the asset will be considered for taxation.  Undisclosed Foreign Income: Any income derived from any source from outside India by the assesse, that is not disclosed will be considered for taxation  If the Incomes and Assets are exhaustively disclosed, then tax, penalties and prosecution will not arise

Rate of Taxes  The undisclosed income will be taxed at a flat rate of 30% followed by penalties as may be decided by the Assessing Officer  The Fair Market Value of the undisclosed asset will be taxed by the Assessing Officer at a flat rate of 30% along with penalties as he may deem to be applicable  The flat rate of tax is independent from the penalties, which will be levied separately  The compliance scheme offered by the Central Government currently will not allow free disclosure. The assesse still has to pay 30% tax and a penalty equal to the amount of tax to be paid

Assessment Proceedings  The Income Tax Authorities continue to levy taxes and administer revenues through the Income Tax Act, however, will refer to this act with regard to any Foreign Assets and Foreign Incomes  Tax authorities can make any inquiry or investigation into matters of the Assesse even though there are no proceedings pending before it  AO will serve notice on the Assesse before proceeding to take any action under this Act  The principles of Natural Justice cannot be violated. The Assesse will be given an opportunity to be heard and to appeal to the ITAT, High Court and Supreme Court(where substantial question of law is involved)

Penalty and Prosecution (1/2) NaturePenaltyProsecution(if any) Non Disclosure of Foreign Income or Asset300% of the Tax Payable(Not yet determined) Failure to disclose foreign asset or income in the return of income 300% of the Tax Payable and Rs.10 Lakhs 6 months – 7 years – if default can be proved to be wilful If person wilfully attempts to evade any tax, penalty or interest 3 months – 10 years Continuing default by assesse in making payment of tax Amount of arrears of tax If Assesse fails to answer any question, sign a statement he is legally bound to or fails to produce books and supporting evidences Rs.50,000 to Rs.2,00,000

Penalty and Prosecution (2/2) NaturePenaltyProsecution(if any) Person makes false statement or delivers false evidences 6 months – 7 years Abetment to make and deliver false return, account, statement or declaration relating to tax payable 6 months – 7 years Subsequent offences under this act – where a person commits the second(or more) offence under this act Rs.5 lakhs – Rs.1 crore3 years – 10 years

Compliance Scheme – Not an Amnesty Scheme  The Bill provides for a one time compliance scheme where the Assesse can disclose any foreign asset acquired by him/her prior to the current Assessment Year (AY )  Tax will be levied at 30% and penalty equal to the same amount will be levied as well. However, this is not an amnesty scheme as penalty will not be waived and cannot be avoided  There will be no additional interest u/s 234 which will be levied  Such amount disclosed under the Compliance Scheme shall not be included in the income of any Assessment Year under the income tax act. Hence, assessments cannot be reopened due to disclosure under this scheme

Impact on Other Laws?  The Assesse will be required to file a declaration with the details of the Asset and Incomes. This declaration will not be considered evidence for initiating penalty proceedings under the Income Tax Act, Wealth Tax Act(now no longer in use), or FEMA  This will not affect any agreement that The Central Government may enter into with any foreign countries regarding Double Taxation Avoidance Agreement, Exchange of information or Investigation etc.

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