The Undisclosed Foreign Income and Assets (Imposition of Tax) Bill, 2015, also known as Black Money Act, 2015, has been approved by both the houses of Parliament with a few amendments. The legislation will become an Act once it receives the President’s assent.
The finance minister said in the Rajya Sabha that the Bill, when made an Act, will provide the last window to those stashing black money in foreign banks to come out clean. If they don’t, the government will come down heavily on them.
The Bill is applicable to Ordinarily Resident taxpayers who have undisclosed foreign income/assets. Expatriate employees, including their family members, qualifying as Ordinarily Residents would also fall under the Bill’s ambit.
While laying down the Bill’s provisions, the FM reiterated that a one-time compliance opportunity will be provided to declare overseas assets and become compliant. Since tax will be imposed for the first time, an opportunity has been provided to pay 30% tax and an equal amount by way of penalty. This one-time opportunity will be provided for a limited period and the timeframe will be notified as part of the rules.
If income is not declared during the window, a flat rate of 30% tax and a penalty of 300% of the tax would be applicable on undisclosed foreign income and assets. Income and assets taxed would, then, not be subject to tax again under domestic tax laws.
Wilful attempts to evade taxes on overseas income and assets will attract rigorous imprisonment ranging from three months to 10 years, besides a fine. Also, the Bill prescribes a R10-lakh penalty for failure to furnish return and inaccurate disclosures in respect of foreign assets, bank accounts and income. However, this will not apply to overseas bank accounts with aggregate balance of R5 lakh or less during the respective year.
It is also contentious whether India will allow tax credit under the Double Taxation avoidance Agreement if taxpayers do not declare foreign income and assets. A key concern is that the Bill’s provisions can have unintended consequences covering bona fide cases or extending its applicability to cases that may not be regarded as stashing unaccounted money.
Rejecting the opposition’s charge that the stringent provisions could result in harassment of innocent people and students, the FM reiterated that “we don’t want to proceed against trivial violations. But then, the big fish must not get away in the garb”. One will have to wait for the government to come up with clarifications providing adequate guidelines to protect innocent taxpayers.
Another concern could be around provisions for recovery of tax on the ‘fair market value’ and not the acquired value.
This would mean that tax would need to be paid on the unrealised appreciated value.
The Bill has the following safeguards to ensure that the innocent are not harassed:
1) Mandatory to issue notice and grant an opportunity of being heard;
2) Appeal to the income tax Appellate Tribunal and to the jurisdictional High Court;
3) Taxpayer can also move Supreme Court on substantial question of law; and
4) Foreign accounts with minor balances not covered by law.
Effective compliance with the Bill will depend on accurate income disclosure and tax payment. Also, the authorities should not impose undue hardship on taxpayers while implementing the Bill.
The writer is tax partner, EY. Views expressed are personal