PROPOSED ANTI-BLACK MONEY LAW

Stashing away of black money abroad has been a matter of great debate and of deep concern to the nation. In fact, the Narendra Modi-led government came to power with one of its promises being to curb and bringing back all the black money parked aboard by certain people. The finance minister, while presenting the Union Budget on February 28, 2015 stated that immediate action is required to effectively deal with the problem of black money. The Supreme Court has also put pressure on the government to take action against tax evaders who have black money stashed away. There has also been a public demand to have an Anti-Black Money Law. It is against this background that the government introduced “The Undisclosed Foreign Income & Assets (Imposition of Tax) Bill’ in the parliament on March 20, 2015.

Objectives and Purpose

• To tax undisclosed foreign income and assets acquired from such undisclosed foreign income.

• To act as a detriment from creating undisclosed foreign income and assets outside India and to punish the persons indulging in generating black money outside India.

• To prevent illegitimate income and assets kept outside India from being utilised in ways which are detrimental to India’s social, economic and strategic interests, and its national security.

Effective Date and Applicability

• The black money Bill shall come into force with effect from April 1, 2016.

• The Bill, which has 88 sections, shall apply to the whole of India.

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Salient Features

(a) Regular Provisions

• Flat tax at 30 per cent on undisclosed foreign income and assets of an ordinary resident in India.

• No time limit to tax foreign income / assets escaping assessment.

• No wealth tax on undisclosed foreign assets.

• No interest under Section 234A, 234B and 234C is chargeable.

• Fixed penalty up to three times of the computed tax.

• Prosecution with imprisonment between three to ten years.

• Proposal to amend the Prevention of Money Laundering Act (PMLA) 2002 to include offence of tax evasion as a scheduled offence under PMLA.

• The bill shall apply to all persons resident in India. Non-residents are outside the purview of the Bill.

• The bill shall apply to both undisclosed foreign income and assets including ownership interest in any entity.

• Disallowance under Section 29 to 43C and Section 57 to 59 of Income Tax Act are not covered.

• Transfer pricing adjustment under Section 92C of the Income Tax Act shall not be taxed under the Bill.

• Appeal to higher authorities possible.

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(b) One Time Compliance Scheme (OTCS)

• One time compliance opportunity is for a limited period to persons who have any undisclosed foreign assets which have been acquired from the income not disclosed for the purpose of income tax.

• The scheme is not for disclosure of undisclosed income.

• Any person may file declaration before the specified tax authorities within a specified period and make payment of tax at 30 per cent and equal amount by way of penalty.

• No interest under Section 234A to 234C of Income Tax Act will be charged.

• Persons availing OTCS will not be prosecuted under the stringent provisions of the new Act.

• Exemption, deduction, set-off and carry forward loss etc. shall not be allowed.

• Declaration under OTCS cannot be used as evidence under the Wealth Tax Act, FEMA, Companies Act or Customs Act.

• Wealth tax shall not be paid on any assets disclosed under OTCS.

• Certain persons are not entitled to OTCS such as who have been detained under the Smuggling Act notified under Section 3 of the Special Court against whom prosecution has been launched under the Indian Penal Code, Narcotic Drug Act and Prevention of Corruption Act, etc.

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Defining Undisclosed Foreign Income and Assets

• Any asset located outside India of which the assessee may be owner or beneficial owner of such asset including financial interest.

• Any asset shall be deemed to be undisclosed asset situated outside India if the assessee does not give satisfactory explanation about the source of investment in such an asset.

• Undisclosed foreign income and assets shall be the aggregate of the amount of undisclosed income from a source outside India and the fair market value of an undisclosed foreign asset.

Computing Tax Liability

• Tax at the rate of 30 per cent on the undisclosed foreign income or asset in the year in which the same came to the notice of the assessing officer.

• No expenditure shall be allowed as deduction from undisclosed foreign income / assets.

• No loss can be set off against such income or assets.

• Any income which has been assessed for tax under the Income Tax Act shall be reduced from foreign undisclosed foreign asset if the asset is acquired from such income.

Penalty

• Three times the tax payable on undisclosed income in case of non-disclosure foreign income and assets.

• Rs 10 lakhs if the assessee fails to disclose foreign assets or income in his income tax return or fails to furnish a return.

• Equal amount of tax arrears if there is a default in payment.

• Rs 50,000 to Rs 2,00,000 if the person fails to answer any questions or give evidence before the tax authorities.

Prosecution

• Three to ten years if the assessee willfully attempts to evade any tax, penalty or interest.

• Six months to seven years for false statement in verification or delivering false accounts or statement.

• Three to ten years for second and subsequent offence.

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Suggestions

• The proposed provisions are very harsh and stringent. To prevent misuse of these provisions, small assessees may be exempted under the Bill but can be taxed under the provisions of the Income Tax Act.

• Clarification should be made regarding the exact nature of foreign income earned and foreign asset acquired.

• If the assessee establishes a reasonable cause in not disclosing foreign income or foreign asset, then penalty may be reduced from 90 to 30 per cent and prosecution may be avoided.