By CA Satish Kumar Gupta - PowerPoint Presentation

1. By CA Satish Kumar GuptaBLACK MONEY (UNDISCLOSED FORIGEN INCOME & ASSETS)& IMPOSITION OF TAX ACT,20151

2. Key Highlights It extends to the whole of India.It is an Act to make provisions to deal with the problems of the Black Money that is undisclosed foreign income and assets, the procedure for dealing with such income and assets and to provide for imposition of tax on any undisclosed foreign income and asset held outside India and for matters connected therewith or incidental thereto.2

3. “Definition of Assessee” Sec 2(2), Person(being a resident other than not ordinarily resident in India )by whom tax is payable under the Income Tax Act in respect of undisclosed foreign income & assets, or any other sum of moneyand includes who is deemed to be an assessee in default 3

4. Assessee in default As per Income Tax Act, 1961 the term “assessee in default” has nowhere been defined. It can be interpreted as any assessee if fails to pay off whole or part of the demand raised by the Income Tax Authorities under section 156 within 30 days of its receipt, is usually termed as assessee in default.4

5. “Undisclosed assets located outside India” Sec 2(11)Asset(including financial interest in any entity)located outside Indiain his name or in respect of which he is a beneficial ownerwhere he has no explanation about the source of investment or,the explanation is unsatisfactory in the opinion of the Assessing Officer. 5

6. “Undisclosed foreign income and asset”Sec 2(12) It 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.“As per the Act, the Undisclosed Foreign Asset means an asset which is unaccounted/ the source of investment in such asset is not fully explainable. Since an asset reported in Schedule FA does not form part of COI in the ITR and consequently does not get taxed, mere reporting of a foreign asset in Schedule FA of the return does not mean that the source of investment in the asset has been explained. [FAQ 17: Cir 13]. If source of investment is explainable, assets are not undisclosed assets even if not reported in the ITR. However, non-disclosure of Foreign Asset in tax return for AY 2016-17 onwards would attract penalty of Rs 10 Lakhs u/s 43 of BM Act[FAQ 18: Cir 13]”.6

7. For the purpose of “basis of charge” - Sec 3(1)There shall be charged on every assessee for every assessment year commencing on or after the 1st day of April, 2016, subject to the provisions of this Act, a tax in respect of his total undisclosed foreign income and asset of the previous year at the rate of thirty per cent. of such undisclosed income and asset. Provided 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.7

8. Value of an Undisclosed Asset-Sec 3(2)For the purposes of this section, "value of an undisclosed asset" means the fair market value of an asset (including financial interest in any entity) determined in such manner as may be prescribed.The Central Board of Direct Taxes (CBDT) vide notification no. 58/2015(issued on 2 July, 2015) laid down the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Rules, 2015 (‘Black Money Rules’) wherein Rule 3 of Black Money Rules outlines the prescribed methodology for arriving at the FMV of Undisclosed Assets. 8

9. Rule 3FMV of quoted shares and securities Higher of • Cost of acquisition • Average of highest and lowest price quoted on any established securities market on the valuation date (or preceding date, in case there is no trading on valuation date)FMV of unquoted equitysharesHigher of • Cost of acquisition • Book-Value of all assets (with some exclusions) plus FMV of assets as provided by other Rules less book value of liabilities (with some exclusions) multiplied by ratio of paid up value of such equity shares and total paid up equity share capital (A+B-L)/PE X PV9

10. FMV of unquoted shares and securities other than equity sharesHigher of • Cost of acquisition • The value that may be fetched if sold in open market on the valuation date. Assessee may obtain report from registered valuer recognised by the Government of the country or any of its agencyFMV bank accounts• Sum of all deposits made in the account with the bank since the Opening Date of the account (Sum of deposits shall not include deposits made from the proceeds of any withdrawal from the account)FMV of bullion, jewellery, precious stone and artistic work orFMV of immovable propertyHigher of • Cost of acquisition • The value that asset may have fetched if sold in open market on the valuation date. (Valuation report from registered valuer recognised by the Government of the country or any of its agencies10

11. Interest in partnership firm, AOP, LLP Net assets to be valued at FMV (as per mechanism given for unquoted equity shares) • Net assets to the extent of capital to be allocated in capital contribution ratio and balance in the ratio agreed for dissolutionOther assets Higher of : • Cost of Acquisition • Price it would fetch in open market on valuation date (arm’s length market price/ arm’s length transaction)11

12. Scope of total undisclosed foreign income and asset - Sec 4Subject to the provisions of this Act, the total undisclosed foreign income and asset of any previous year of an assessee shall be:-(a) the 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.(b) the income, from a source located outside India, in respect of which a return is required to be furnished under sec 139 of the Income-tax Act but no return of income has been furnished within the time specified in Explanation 2 to sub-sect (1) or under sub-sec (4) or sub-sec(5) of sec 139 of the said Act.(c) the value of an undisclosed asset located outside India.12

13. Scope of total undisclosed foreign income and asset - Sec4(2)Notwithstanding anything contained in sub-section (1), any variation made in the income from a source outside India in the assessment or reassessment of the total income of any previous year, of the assessee under the Income-tax Act in accordance with the provisions of section 29 to section 43C or section 57 to section 59 or section 92C of the said Act, shall not be included in the total undisclosed foreign income.13

14. Computation of total undisclosed foreign income and asset - Sec 5In computing the total undisclosed foreign income and asset of any previous year of an assessee,— (i) no deduction in respect of any expenditure or allowance or set off of any loss shall be allowed to the assessee, whether or not it is allowable in accordance with the provisions of the Income-tax Act. (ii) any income,— (a) which has been assessed to tax for any assessment year under the Income-tax Act prior to the assessment year to which this Act applies; or (b) which is assessable or has been assessed to tax for any assessment year under this Act. shall be reduced from the value of the undisclosed asset located outside India, if, the assessee furnishes evidence to the satisfaction of the Assessing Officer that the asset has been acquired from the income which has been assessed or is assessable, as the case may be, to tax.14

15. Illustration1A house property located outside India was acquired by an assessee in the previous year 2009-10 for fifty lakh rupees. Out of the investment of fifty lakh rupees, twenty lakh rupees was assessed to tax in the total income of the previous year 2009-10 and earlier years. Such undisclosed asset comes to the notice of the Assessing Officer in the year 2017-18. If the value of the asset in the year 2017-18 is one crore rupees, the amount chargeable to tax shall be A-B=C where, Property noticed by AO in FY 2017-18, FMV (A)=Rs.1 crore, Out of investment of INR 50 Lakhs, INR 20 lakhs has been assessed to tax in FY 2009-10, therefore proportionate relief (B) = 100*20/50Rs. (100 x 20/50) lakhs , B= Rs.40 lakhs Amount chargeable to tax C=Rs. (100-40) lakh=Rs.60 lakh.15

16. Illustration-2Computation of total Undisclosed Foreign Income and assetFigures (in Rs lakhs)Foreign income which has not been disclosed in IT Return200Foreign Income in respect of which no IT return has been filed50FMV of Undisclosed Foreign Asset (calculated as per Rule 3 of BM Rules)100Total value of Undisclosed Foreign Income and Asset350Tax@30%105An Assessee has foreign income which has not been disclosed in IT Return of Rs 200 lakhs , foreign Income in respect of which no IT return has been filed of Rs 50 lakhs and Undisclosed Foreign Asset whose FMV calculated as per Rule 3 of BM Rules is Rs 100 Lakhs. Compute the Tax as per Black Money Act.16

17. Income Tax Authorities as specified in sec 116 of the IT Act 1961Sec-817

18. Powers regarding discovery and production of evidence(2) For the purposes of making any inquiry or investigation, the prescribed tax authority shall be vested with the powers referred to in sub-section (1), whether or not any proceedings are pending before it.(3) Any tax authority prescribed for the purposes of sub-section (1) or sub-section (2) may, subject to the rules made in this behalf, impound any books of account or other documents produced before it and retain them in its custody for such period as it thinks fit.18

19. Powers regarding discovery and production of evidenceSec 8(4), Any tax authority below the rank of Commissioner shall not— (a) impound any books of account or other documents without recording his reasons for doing so; or(b) retain in his custody any such books or documents for a period exceeding thirty days without obtaining the approval of the Principal Chief Commissioner or the Chief Commissioner or the Principal Commissioner or the Commissioner.19

20. Proceedings before tax authorities to be judicial proceedings - Sec- 9(1) Any proceeding under this Act before a tax authority shall be deemed to be a judicial proceeding within the meaning of section 193 and section 228 and for the purposes of section 196 of the Indian Penal Code (45 of 1860).(2) Every tax authority shall be deemed to be a civil court for the purposes of section 195, but not for the purposes of Chapter XXVI of the Code of Criminal Procedure, 1973. (2 of 1974)20

21. Assessment Sec-10(1) For the purposes of making an assessment or reassessment under this Act, the Assessing Officer may, on receipt of an information from an income-tax authority under the Income-tax Act or any other authority under any law for the time being in force or on coming of any information to his notice, serve on any person, a notice requiring him on a date to be specified to produce or cause to be produced such accounts or documents or evidence as the Assessing Officer may require for the purposes of this Act and may, from time to time, serve further notices requiring the production of such other accounts or documents or evidence as he may require.(2) The Assessing Officer may make such inquiry, as he considers necessary, for the purpose of obtaining full information in respect of undisclosed foreign income and asset of any person for the relevant financial year or years.21

22. (3) The Assessing Officer, after considering such accounts, documents or evidence, as he has obtained under sub-section (1), and after taking into account any relevant material which he has gathered under sub-section (2) and any other evidence produced by the assessee, shall by an order in writing, assess the undisclosed foreign income and asset and determine the sum payable by the assessee.(4) If any person fails to comply with all the terms of the notice under sub-section (1), the Assessing Officer shall, after taking into account all the relevant material which he has gathered and after giving the assessee an opportunity of being heard, make the assessment of undisclosed foreign income and asset to the best of his judgment and determine the sum payable by the assessee.22

23. Time limit for completion of assessment and reassessment Sec11(1)No order of assessment or reassessment shall be made under section 10 after the expiry of two years from the end of the financial year in which the notice under sub-section (1) of section 10 was issued by the Assessing Officer.23

24. Penalties leviable & offences subject to prosecution under Black Money ActParticularsPenaltyPenalty in respect of tax computed on undisclosed foreign income and asset {Sec 41}03 times the tax amountPenalty for non-filing of Return of Income (ROI) under Section 139(1) by an assesseehaving an undisclosed foreign income or assetINR 10, 00, 000Non-disclosure or incorrect disclosure in ROI of foreign income or asset*INR 10, 00, 000Default in tax paymentEqual to the tax amountOther defaults (as per Section 45 of the Act: Failure to answer any questions/sign anystatement made by him/attend or produce documentsINR 50, 000 up to INR 2, 00, 000* No penalty shall apply in respect of an asset being one or more bank accounts, aggregate balance in which does not exceed INR 5 lakh at any time during the previous year.24

25. OffenceProsecutionWillful failure to furnish a return of income (before expiry of AY) in respect of UFIARigorous imprisonment from 6 months to 7 years with fineWillful failure to disclose information relating to foreign income and assets inreturn of incomeRigorous imprisonment from 6 months to 7 years with fineWillful attempt to evade tax, penalty or interest in relation to UFIARigorous imprisonment from 3 to 10 years with fineWillful attempt to evade payment of tax, penalty or interest in relation to UFIARigorous imprisonment from 3 months to 3 years with fineA person who makes false statement in any verification or delivers falseaccount or statementRigorous imprisonment from 6 months to 7 years with fineA person who abets or induces another person to make and deliver falseaccount, statement or declarationRigorous imprisonment from 6 months to 7 years with fine25

26. Frequently asked questions (FAQs) On 6 July 2015, the Indian Government issued FAQs on the scope and procedure of the disclosure opportunity. Some of these details are set out below Assets acquired by taxpayers when they were non-resident, from income which is not taxable under Indian tax law, will not be considered as undisclosed assets.Taxpayers who are non-resident in the current financial year are still eligible to make a disclosure if the assets are acquired from undeclared income which was taxable in India whilst they were resident.Failure to report an asset in an income tax return does not automatically mean it is an undisclosed asset. If a taxpayer is able to explain the source of acquisition of the asset and if the asset is acquired out of income which was taxed in India, the asset is not considered as undisclosed.26

27. In the case of ordinarily resident taxpayers, overseas assets are required to be reported in tax returns for the financial year 2015/16 and onwards, even if acquired from income not chargeable to tax in India. Failing this, a penalty of INR 1,000,000 (approximately $15,600 USD) will be levied.However, there is no levy of the INR 1,000,000 penalty if the undisclosed assets are foreign bank accounts having an aggregate balance not exceeding INR 500,000 at any time during the financial year.On the other hand, the mere reporting of a foreign asset in the income tax return for the current financial year or earlier years does not mean that the source of income for the asset has been explained and that it is not an undisclosed asset.  If the taxpayer is unable to explain the source of the investment, then the asset is treated as undisclosed even though it was reported in the tax return. Thus, an individual is not exonerated by the mere reporting of the asset in the return.27

28. A declaration may be made if the foreign asset was acquired out of undisclosed income even if the asset has been disposed of and is not held by the taxpayer on the date of the declaration.An asset acquired by a non-resident from income which is no chargeable to tax in India is not an undisclosed asset under the Act even if the individual is a resident of India in the year under question. However, income (if accrued or received in India) is chargeable to tax even for a non-resident and thus, if such income was not disclosed in the return of income and the foreign asset was acquired from such income then the asset is treated as undisclosed.In case of undisclosed income deposited in a foreign bank account over a period, the FMV will be the sum of all the deposits made in the account and not on the balance appearing in the bank account. Further, even a bank account closed in the prior years will be considered as undisclosed, if the source is not explained and was acquired from untaxed income28

29. Outcome of the ActUndisclosed Assets and Income totaling Rs 6,000 crore have been detected under the foreign black money law .Under the Act, a one-time compliance opportunity for a limited period was provided to those persons who have any foreign assets which have hitherto not been disclosed for the purposes of Income-tax. In this compliance window, which closed on September 30, 2015, 648 declarations involving undisclosed foreign assets worth over Rs 4,100 crore were made. An amount of over Rs 2,470 crore has been collected by way of tax and penalty in such cases  by the Government.29

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31. Assessment/Notification/ChangesCases against this actCase studyResults31