In the Budget Speech 2015, the Finance Minister outlined certain broad themes surrounding the tax proposals. The “first and foremost pillar” was stated to be “to effectively deal with the problem of black money”. To that end, the Government has introduced the Undisclosed Foreign Income and Assets (Imposition of Tax) Bill, 2015 in the Lok Sabha. A copy of the Bill can be downloaded here.
The charging mechanism is provided under s. 3 and 4: the charge is in respect of an assessee’s “total undisclosed foreign income and asset of the previous year”, with a proviso that an undisclosed asset located outside India shall be charged to tax on its value in the previous year in which such asset comes to the notice of the Assessing Officer. “Undisclosed foreign income and asset” is defined to be (a) income from a source located outside India which has not been disclosed in a return filed under the Income Tax Act, (b) income from such sources, in respect of which no return at all is filed under the Income Tax Act, and (c) the value of an undisclosed asset located outside India. Thus, the charge is on foreign income as well as on foreign assets. “Undisclosed asset located outside India” is defined to mean “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.” The charge on the asset would be computed by taking the fair market value of the asset in the year in which the asset is noticed by the Assessing Officer.
The highlights of the Bill have been noted in a press release by the PIB, available here. The PIB has noted the salient features of the Bill as under:
Scope – The Act will apply to all persons resident in India. Provisions of the Act will apply to both undisclosed foreign income and assets (including financial interest in any entity).
Rate of tax – Undisclosed foreign income or assets shall be taxed at the flat rate of 30 percent. No exemption or deduction or set off of any carried forward losses which may be admissible under the existing Income-tax Act, 1961, shall be allowed.
Penalties – Violation of the provisions of the proposed new legislation will entail stringent penalties.
The penalty for non-disclosure of income or an asset located outside India will be equal to three times the amount of tax payable thereon, i.e., 90 percent of the undisclosed income or the value of the undisclosed asset. This is in addition to tax payable at 30%.
Failure to furnish return in respect of foreign income or assets shall attract a penalty of Rs.10 lakh. The same amount of penalty is prescribed for cases where although the assessee has filed a return of income, but he has not disclosed the foreign income and asset or has furnished inaccurate particulars of the same.
Prosecutions – The Bill proposes enhanced punishment for various types of violations.
The punishment for willful attempt to evade tax in relation to a foreign income or an asset located outside India will be rigorous imprisonment from three years to ten years. In addition, it will also entail a fine.
Failure to furnish a return in respect of foreign assets and bank accounts or income will be punishable with rigorous imprisonment for a term of six months to seven years. The same term of punishment is prescribed for cases where although the assessee has filed a return of income, but has not disclosed the foreign asset or has furnished inaccurate particulars of the same.
The above provisions will also apply to beneficial owners or beneficiaries of such illegal foreign assets.
Abetment or inducement of another person to make a false return or a false account or statement or declaration under the Act will be punishable with rigorous imprisonment from six months to seven years. This provision will also apply to banks and financial institutions aiding in concealment of foreign income or assets of resident Indians or falsification of documents.
Safeguards – The principles of natural justice and due process of law have been embedded in the Act by laying down the requirement of mandatory issue of notices to the person against whom proceedings are being initiated, grant of opportunity of being heard, necessity of taking the evidence produced by him into account, recording of reasons, passing of orders in writing, limitation of time for various actions of the tax authority, etc. Further, the right of appeal has been protected by providing for appeals to the Income-tax Appellate Tribunal, and to the jurisdictional High Court and the Supreme Court on substantial questions of law.
To protect persons holding foreign accounts with minor balances which may not have been reported out of oversight or ignorance, it has been provided that failure to report bank accounts with a maximum balance of upto Rs.5 lakh at any time during the year will not entail penalty or prosecution.
Other safeguards and internal control mechanisms will be prescribed in the Rules.
One time compliance opportunity – The Bill also provides a one time compliance opportunity for a limited period to persons who have any undisclosed foreign assets which have hitherto not been disclosed for the purposes of Income-tax. Such persons may file a declaration before the specified tax authority within a specified period, followed by payment of tax at the rate of 30 percent and an equal amount by way of penalty. Such persons will not be prosecuted under the stringent provisions of the new Act. It is to be noted that this is not an amnesty scheme as no immunity from penalty is being offered. It is merely an opportunity for persons to come clean and become compliant before the stringent provisions of the new Act come into force.
Amendment of PMLA – The Bill also proposes to amend Prevention of Money Laundering Act (PMLA), 2002 to include offence of tax evasion under the proposed legislation as a scheduled offence under PMLA.