Black Money (Undisclosed Foreign Income and Assets) Act, 2015 – An Assessment


The Black Money (Undisclosed Foreign Income and Assets) Act, 2015 received the assent of the President on the 26th May, 2015. The Act to make provisions to deal with the problem 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
Scope:  The Act will apply to all persons residing in India. Provisions of the Act will apply to both undisclosed foreign income and assets (including financial interest in any entity).

The Act seeks to replace the Income Tax (IT) Act, 1961 for the taxation of foreign income.  It penalizes the concealment of foreign income, and provides for criminal liability for attempting to evade tax in relation to foreign income.
Tax rate: A flat rate of 30 per cent tax would apply to undisclosed foreign income or assets of the previous assessment year.  No exemption, deduction or set off of any carried forward losses (as provided under the IT Act) would apply.  This would apply from April 1, 2016 onwards.
Scope of income to be taxed: The total undisclosed foreign income and asset of an individual would include: (i) income, from a source located outside India, which has not been disclosed in the tax returns filed; (ii) income, from a source outside India, for which no tax returns have been filed; and (iii) value of an undisclosed asset, located outside India.
One - time compliance opportunity: A one-time compliance opportunity to persons who have any undisclosed foreign assets (for all previous assessment years) will be provided for a limited period.  Such persons would be permitted to file a declaration before a tax authority, and pay a penalty at the rate of 100%. 
Tax Authorities: The relevant tax authorities and their jurisdiction would be as specified under the IT Act.  They would have powers of inspection of documents, and evidence.  The proceedings are to be judicial.
Penalty for offences:
(i) Undisclosed foreign income/assets: The penalty for nondisclosure of foreign income or assets would be equal to three times the amount of tax payable, in addition to tax payable at 30%.
(ii) Failure to furnish returns: The penalty for not furnishing income tax returns in relation to foreign income or assets is a fine of Rs 10 lakh.  This would not apply to an asset, with a value of five lakh rupees or less.
(iii) Undisclosed or inaccurate details of foreign assets: If a person who has filed tax returns does not disclose his foreign income, or submits inaccurate details of the same, he has to pay a fine of Rs 10 lakh.  This would not apply to an asset, with a value of five lakh rupees or less.
(iv) Second time defaulter: Any person, who continues to default in paying tax that is due, would be liable to pay an amount equal to the amount of tax arrears.
(v) Other defaults: If a person fails to abide by the tax authority in (i) answering questions, (ii) signing off on a statement, (iii) attending or producing relevant documents, he is to pay a fine between Rs 50,000 to two lakh rupees.
Prosecution for certain offences:
(i) Wilful attempt to evade tax: The punishment would be rigorous imprisonment from three to 10 years, and a fine.
(ii) Wilful attempt to evade payment of tax: The punishment would be rigorous imprisonment from three months to three years, and a fine.
(iii) Failure to furnish returns: or non disclosure of foreign assets in returns: The punishment is rigorous imprisonment of six months to seven years, and fine.
(iv) Punishment for abetment: The punishment is rigorous imprisonment of six months to seven years, and fine.
(v) Liability of company: For any offence under this Act, every person responsible to the company is to be liable for punishment.  His liability is absolved if he proves that the offence was committed without his knowledge.
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 act 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. 
Merits :
1) It mandates people to disclose their foreign accounts bringing them into public scrutiny. But the issue is black money is not stored in single accounts, it's layered and stored in benami accounts abroad.
2) Crimnial punishment will act as deterrent. Certainly it will Instil fear but that may be giving too much power to the tax agencies. It can be misused.
Demerits :
1) It does not address the issue of black money in India which is significantly more than in foreign accounts. Government intends to do that through the Benami transactions act.
2) It does not indicate measures to prevent layering and issue of benami foreign accounts.
3) The issue of storing money in foreign assets is unaddressed. Foreigners are itself used as Benami.
These issues need to be addressed to make the bill effective but at the same time prevent undue harassment. Moreover, domestic black money should be tackled with similar vigour.

Critical Appraisal
The act does not speak anything regarding tracking the black money. This is said to be the biggest lacuna in the Bill. The Undisclosed Foreign Income and Assets (Imposition of Tax) Bill, 2015 also known as the Black Money Bill does not have provisions to deal with domestic illegal assets and cash held on Indian soil. According to the provisions of the Bill those declaring unaccounted income or assets will pay a flat 30% tax and a similar penalty in return for not being prosecuted. The Prevention of Money Laundering Act is also amended to help tax authorities pursue recovery through domestic assets as well in cases of those caught with overseas assets under the new black money law. The bill provides for the attachment of domestic property of those on the wrong end of the foreign assets law. The government is also planning to bring a law on Benami properties. Those abetting in stashing wealth overseas, including tax advisors, financial advisors, banks and financial institutions, will also face jail terms of up to seven years.
Experts say that the law will enhance the ability to trail the original source of funding and even attach properties even though the original owner can escape the law by stating that the property doesn’t belong to him. Several thousands of such benami transactions are pending action due to loopholes in the law, but the revised Bill has given more teeth to it for confiscation of such properties and curb generation of black money in the real estate sector, which is the root cause of unaccounted money in the system. As of now, experts point out, 35% of land deal and high end properties are transacted in cash and balance 65% through legal channel. The bill will discourage the cash transaction and lead to a correction in property prices that have artificially soared.
Related Term
Tax Haven A country that offers foreign individuals and businesses little or no tax liability in a politically and economically stable environment. Tax havens also provide little or no financial information to foreign tax authorities. Individuals and businesses that do not reside a tax haven can take advantage of these countries' tax regimes to avoid paying taxes in their home countries. Tax havens do not require that an individual reside in or a business operate out of that country in order to benefit from its tax policies.

Friday, 02nd Oct 2015, 08:39:19 AM

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