The Central Government introduced the Undisclosed Foreign Income and Assets (Imposition of Tax) Bill, 2015 (Bill) in the Lok Sabha, the lower house of the Parliament, on 20 March 2015. Our Newsflash of 1 April 2015 detailed the provisions of this Bill, please click here to access. Nearly two months later, on 11 May 2015, the Bill was passed by the Lok Sabha as The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Bill, 2015 with minor changes and a change in relation to agreement with other countries.
The Bill was then forwarded to Rajya Sabha, the upper house of the Parliament, for its approval and was passed by the Rajya Sabha on 14 May 2015. The Black Money Bill now awaits the assent of the President of India before it is notified and takes effect as an Act.
In this news flash we highlight the changes in the Bill as passed by the Parliament and also the possible impact of the law.
Changes made in the Bill
The name of the Bill has been changed and will read as “The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Bill, 2015” (Black Money Bill).
Agreement with Other Countries for credit of taxes
The Bill (as introduced in the Lok Sabha) had provided that the Central Government may enter into an agreement with the government of any other country for granting relief in respect of double taxation or for exchange of information to prevent evasion of tax on undisclosed foreign income and to carry out the purposes of the Bill.
The Black Money Bill (as passed by the Parliament) no longer provides for the Central Government to enter into agreements with other countries for granting relief in respect of income on which tax has been paid in India as well as the other country, i.e., granting of relief from double taxation. Accordingly, a credit for taxes paid in the foreign country in relation to undisclosed incomes / assets will not be available under the Black Money Bill.
The Black Money Bill has been expeditiously passed by the Parliament and will soon be law after the President’s assent. Though one will need to wait for the finer nuances to unfold once the formats for one time disclosure, mechanisms for valuation of assets, etc. are notified, certain issues still remain unaddressed:
- The Black Money Bill provides that a voluntary declaration (under the one time window) made by misrepresentation or suppression of facts will be treated as void and deemed to have never been made. There is no clarity as to at what stage such determination will be done, by whom and the time period within which such determination will be done for treating any declaration void. Such uncertainty and ambiguity could give arbitrary powers to the tax authorities and may lead to misuse/ harassment even in genuine cases where there could be inadvertent mistake on the part of the declarant.
- Immunity has been granted from penalty and prosecution under some Acts, there is no clarity as to whether the officials concerning enforcement of other laws will be provided information and whether they will start proceedings against the declarants under their respective laws. Immunity should be granted from all proceedings under all applicable laws to make the immunity really meaningful and complete to encourage people to take advantage of this onetime opportunity.
- The Black Money Bill will apply to ‘resident’ as per Income Tax Act, 1961 (IT Act). Should the definition as per the Finance Act, 2015 be considered? This means, if a company has place of effective management in any year in India, it would be resident and would be required to file a tax return in India under Section 139 and disclose all foreign assets and income. It needs to be clarified that for the past years only the companies which were resident as per the definition of residence of companies under the IT Act prior to the change in definition by Finance Act, 2015 would be considered.
What is awaited?
- Form of declaration under the one time voluntary disclosure window.
- The date within which voluntary declaration will need to be made and time within which payment of tax and penalty on the amount of declaration will need to be made are yet to be notified.
- Valuation mechanism for valuation of assets.
Significant penalties and stringent prosecution provisions
The Black Money Bill provides for huge financial penalties and stringent prosecution provisions for non-reporting of offshore assets and income.
Penalties – Where an undisclosed foreign asset was acquired before 1 April 2015 and
- If ‘Tax Return’ under the IT Act has not been filed for the past assessment year(s) beginning before 1 April 2015 and the person has not availed of or is otherwise not eligible to avail of ‘Onetime Disclosure Window’, then as per the plain language of the Black Money Bill, the person exposes himself to a hefty penalty of INR 10 lakhs (approx. USD 16,000).
- If the person concerned has filed the ‘Tax Return’ under IT Act but has not reported undisclosed foreign asset / income or furnished inaccurate particulars thereof, he also exposes himself to a penalty of INR 10 lakhs.
Prosecution– Where an undisclosed foreign asset was acquired before 1 April 2015 and
- If the person concerned does not willfully file a tax return reporting the foreign asset within the due date provided under Section 139(1) of the IT Act, he would expose himself to a rigorous imprisonment of 6 months to 7 years and fine.
- If the person concerned files the tax return but willfully does not furnish information relating to foreign asset where he is / was connected (as owner or otherwise), he would expose himself to rigorous imprisonment of 6 months to 7 years and fine.
Considering the importance given to the issue by the Central Government and strict penalties, and prosecution prescribed under the Black Money Bill (as summarized above), it would be essential that the person ensures that all aspects pertaining to foreign assets are carefully examined and detailed, complete and meticulous disclosure is made to successfully resolve the issues with the tax authorities.