Tax Practioner Association THE BLACK MONEY (UNDISCLOSED FOREIGN INCOME AND ASSETS) AND IMPOSITION OF TAX ACT, 2015 CA Deepak Mantri 24 July 2015
Transcript
1. Tax Practioner Association THE BLACK MONEY (UNDISCLOSED
FOREIGN INCOME AND ASSETS) AND IMPOSITION OF TAX ACT, 2015 CA
Deepak Mantri 24 July 2015
2. Contents Objectives of the Act Analysis of the Act Rules of
Valuation of Asset One time compliance procedure FEMA and UFIA Case
Studies Summary of Discussion
3. Genesis and objectives of UFIA 2015 Stashing away of black
money abroad by Indian residents with intent to evade taxes / other
malafides Supreme Court directives and Special Investigation Team
(SIT) findings Swiss Bank disclosures on bank accounts owned by
Indians and media reports Raised public conscience and
parliamentary debates and pressures by opposition Prime Ministers
one of the key election manifestoes before last Lok Sabha elections
Co-ordinated awareness and drive against black money by global and
emerging economies and absence of comprehensive laws
4. International Cooperation EU, SWISS SIGN AGREEMENT TO END
BANK SECRECY- The European Commission and the Swiss government May
27 signed a landmark new tax transparency agreement, which will
effectively end bank secrecy for Europeans, strengthen the fight
against tax evasion and prevent tax evaders from hiding undeclared
income in Swiss accounts. India signs the Multilateral Competent
Authority Agreement (MCAA) pact on Automatic Exchange of
Information (AEOI) - Previously, 54 countries had joined the MCAA.
- India is among six countries that joined this taking the number
to 60. - The target is to reach 94 countries by 2017.
5. Objectives To deal with problem of black money that is
undisclosed foreign income and assets To lay down procedures to
deal with such foreign income and assets (punishment and prevention
of such income and asset outside India) To impose of tax on any
undisclosed foreign income and assets and matters connected or
incidental
6. Analysis of the UFIA Act
7. Analysis Arrangement of UFAI ACT UFIA Key Terms Definations
in the UFIA Act Undisclosed foreign income and assets Computation
of tax on UFIA Assessment procedures Levy of Interest Penalties,
offences and prosecution
8. Arrangement of UFAI ACT Black Money act has 88 sections and
7 chapters : Preliminary (Sec 1-2 ) Basis of charge (Sec 3-5) Tax
Management ( Sec 6 - 40 ) Penalties ( Sec 41-47 ) Offences and
Prosecution (48- 58) Onetime disclosure window ( 59-72 ) General
Provisions ( Sec 73- 88 )
9. Rules, FAQ etc 12 Rules ( Notf 58/2015) Explanatory Notes (
Circular 12 dt 2 July 15) FAQ ( Circular 13 dt 6 July 15 ) Form 1
to Form 7
10. Key Term- Assessee Section 2(1) defines Assessee as under:
assessee means a person, being a resident other than not ordinarily
resident in India within the meaning of clause (6) of section 6 of
the Income-tax Act, by whom tax in respect of undisclosed foreign
income and assets, or any other sum of money, is payable under this
Act and includes every person who is deemed to be an assessee in
default under this Act This Act will not apply to any person who is
Not Ordinary Resident and Non Resident.
11. Assessee -Analysis Meaning of Person Not defined under the
UFIA Act Definition under ITA will be adopted Thus, it will include
Individuals Hindu Undivided Family (HUF) Company Firm Association
of Persons (AOP) Body of Individuals (BOI) Local authority Every
other artificial jurisdictional person Residence in case of
individuals To apply to Resident and Ordinarily Resident (ROR)* who
is required to pay tax on undisclosed foreign income and assets or
any other sum of Money It will not apply to an Individual who is:
Resident but Not Ordinarily Resident (RNOR) Non-resident (NR)
Residence in case of Companies To apply to companies incorporated
in India or having its place of effective management (POEM) in
India POEM: A place whether key management decisions in substance
are made More clarity awaited on scope of POEM Residential status
should be Resident and ordinarily Resident in the year of detection
of undisclosed income and asset
12. Applicability -Chart Irrespective of his residential status
being NR/NOR in previous AYs PersonPerson Person Resident under ITA
in Previous Year PersonNoPersonYes Person Non-resident in 9 out of
the 10 preceding previous years OR Presence in India during
preceding 7 years been in India for 729 days or less PersonUFIA not
applicable PersonPerson Person Person PersonRNORYesNo ROR UFIA
applicable
13. Undisclosed foreign income and assets Section 2(11), 2(12)
and 4 Undisclosed Foreign Income and Asset (UFIA) [Section 2(12)]
Total amount of undisclosed income from source located outside
India [as referred in Section 4(1)], and Value of UFA located
outside India UFIA shall be Income from a source located outside
India which has not been disclosed in the Return of Income filed
under the ITA Income from sources, in respect of which return is
not filed under the ITA and Value of undisclosed foreign asset
(UFA) located outside India (fair market value in the previous year
in which AO notices UFA- method of valuation prescribed by rules)
Computation of UFIA laid down under section 5 of the Bill
Undisclosed Asset located outside India (UFA) [Section 2(11)] An
asset (including financial interest in any entity) located outside
India Asset can be held by the assessee in his name or in respect
of which he is a beneficial owner, and Assessee has no explanation
about the source of investment in such asset or the explanation
given by him is the opinion of the Assessing Officer is
unsatisfactory Test of undisclosed foreign asset is to explain the
source of investment Asset not taxable as UFA if its source is
explained (even though it is not declared in the return of
income)
14. ---- Contd UFA is not defined under the Act. It will
include all assets either movable or immovable (including financial
interest in an entity) A cue can be taken from the Instructions of
Schedule FA to the Income Tax Returns: Financial interest would
include, but would not be limited to, any of the following:- (1) if
the resident assessee is the owner of record or holder of legal
title of any financial account, irrespective of whether he is the
beneficiary or not. (2) if the owner of record or holder of title
is one of the following:- (i) an agent, nominee, attorney or a
person acting in some other capacity on behalf of the resident
assessee with respect to the entity. (ii) a corporation in which
the resident owns, directly or indirectly, any share or voting
power. (iii) a partnership in which the resident assessee owns,
directly or indirectly, an interest in partnership profits or an
interest in partnership capital. (iv) a trust of which the resident
has beneficial or ownership interest. (v) any other entity in which
the resident owns, directly or indirectly, any voting power or
equity interest or assets or interest in profits.
15. Computation of tax on UFIA UFIA will be taxed @ 30% - no
surcharge and cess Tax will be charged on its value in the previous
year in which UFIA is noted by AO and notice is issued Value of UFA
means fair market value of an asset including financial interest in
any entity) in the previous year in which it comes to AOs notice
method of valuation prescribed by Rule 3 If UFIA is taxed under
this new legislation, it will not be taxed under ITA Any variation
made to the foreign sourced income as per section 29 to 43C or
section 57 to 59 or section 92C of the ITA will not be included in
total undisclosed foreign income
16. Computation of tax on UFIA Computation of total UFIA Sec 4
Income from source located outside India (foreign income FI) which
has not been disclosed in IT Return xx FI in respect of which no IT
return has been filed xx FMV of UFA (no explanation or
unsatisfactory explanation about the source of income has been
provided Section 4(3)) xx Hardship to the assessee as tax and
penalties proposed to be calculated at current value of assets
instead of original purchase price
17. Computation of tax on UFIA As per Section 5, No
expenditure, allowance, set off of any loss shall be allowed as
deduction from total UFIA no mention about liabilities incurred
against undisclosed foreign assets If any income is assessed prior
to AY 2016-17 under ITA or any income is assessed / assessable
under UFIA Act shall be reduced from the value of UFA outside India
subject to producing evidence that the UFA was acquired from such
income Proportionate income which was been assessed to tax under
ITA or UFIA Act shall be reduced from FMV of UFA being immovable
property Value of UFA as on first day of FY (in which AO notices
such asset) Assessed / assessable foreign income Total cost of the
asset
18. Computation of tax on UFIA Computation of total UFIA Income
from source located outside India (foreign income FI) which has not
been disclosed in IT Return xx FI in respect of which no IT return
has been filed xx FMV of UFA (no explanation or unsatisfactory
explanation about the source of income has been provided Section
4(3)) xx Less Income which has been assessed to tax for any
assessment year under the ITA prior to relevant AY in which UFIA
applies (XX) Income which is assessable or has been assessed to tax
for any assessment year under UFIA (XX) In case of immovable
properties, the deduction will be: Value of UFA as on first day of
FY in the same proportion as assessed / assessable foreign income
bears total cost (XX) Total value of UFIA XX Tax @ 30% XX The
quantum of penalty may vary between 100% to 300% of the tax amount,
depending on whether voluntarily disclosures are made under one
time disclosure window or UFIA is detected by Assessing
officer
19. Illustration Mr. A acquired foreign asset (immovable
property) in the AY 2010-11 for Rs.60 lacs. Out of the total
investment, Rs.40 lacs was assessed to tax in an earlier year. In
AY 17-18, AO identified the value of such undisclosed asset as Rs.2
crore for which no explanation was provided. Computation of total
UFIA Rs. (in crores) FMV of UFA (no explanation provided or
explanation not satisfactory) 2.00 Less Income which has been
assessed to tax for any (1.33) assessment year under the ITA prior
to relevant AY in which the Black Money Act [Rs.2crore -(Rs.2crore
X 0.40 lacs / 0.60lacs)] Amount chargeable to tax under Black Money
Act 0.67
20. Assessment Procedure Chapter III (Sec 6- 40) Tax Management
No requirement to file a separate return under UFIA Act. Assessment
/ reassessment by AO in respect of undisclosed foreign income or
asset on the basis of information received Issue of notice for
assessment / reassessment (no timeline provided), opportunity of
being heard and furnishing of evidences / documents will be given
principles of natural justice to be followed Inquiry or
investigation by Tax Authorities into matters of the assesse even
though there are no proceedings pending before it
21. Tax Management- Contd Time limit for completion of
assessment and reassessment shall be 2 years from the end of the
financial year in which notice was issued It is expected that two
assessment orders will be passed in respect of period covered by a
single return of income: under section 143(3) of ITA and 10(3) of
UFIA Act Remedial measures provided - appeal to CIT(A) / ITAT /
High Court and Supreme Court (for substantial question of law),
rectification of mistakes, revision of orders, recovery of arrears
Under UFIA, the AO will be able to re-open the assessments beyond
16 years.
22. Levy of interest Section 40 Interest will be levied for
undisclosed foreign income Non-filing of Income-tax Return
disclosing foreign assets and income Non-payment of advance tax in
relation to undisclosed income
23. Nature of default Penalty Prosecution Concealment of
foreign income and asset Failure to disclose foreign income and
asset 300 % (in addition to tax) ( Sec 41) 3 years 10 years (sec
51) Failure to furnish return of income Failure to disclose foreign
asset or income in the return of income Note: No penalty shall be
levied under Clause 42 or 43 if any foreign asset, being one or
more bank accounts, has an aggregate balance of Rs 500000 or less
Rs 10 lakhs (Sec 42/43 ) 6 months 7 years (Sec 49-50) Default in
payment of tax arrears Attempt to evade payment of tax, interest
and penalty Equal to the amount of tax arrears (Sec 44) 3 months 3
years Penalty & Prosecution
24. Penalty Contd Nature of default Penalty Failure to furnish
documents before tax authority [Section 45] If any person fails to:
a) answer any question asked by tax authority b) sign a statement
which he is legally bound to do so c) attend or to give evidence or
produce books of account Rs.0.5 Lakhs to Rs.2 Lakhs Punishment for
second and subsequent offences [Section 58] If a person, who has
been convicted for an offence as mentioned above, is again
convicted for an offence under this Bill Rs. 5 lakhs to Rs. 1
Crore
25. Rules of Valuation of Asset
26. Value of bullion, jewellery etc Higher of Its cost of
acquisition The price it will fetch if sold in the open market
-Report from a valuer recognised by the Government of a
country
27. Valuation of shares and securities Higher of Its cost of
acquisition The average of the lowest and highest price of such
shares on valuation date (unquoted shares to be valued on the
formula )
28. Valuation of Immovable property Higher of Its cost of
acquisition The price it will fetch if sold in the open market
-Report from a valuer recognised by the Government of a
country
29. Value of Bank Account The Sum of all the deposits made in
the account with the bank since the date of opening of the
account;
30. One time compliance procedure Genral Who can declare
Procedure- Rate of Tax etc Procedure-How to declare Procedure of
declaration Benefit of Scheme Who can not declare
31. General Sections 59 to 72 provide for one time voluntary
declaration to avoid any penal action under this legislation
Positioned as not being an amnesty scheme there is no immunity from
penalty Merely an opportunity for persons to come clean and become
compliant before the stringent provisions of the new Act come into
force No additional interest u/s.234A, 234B and 234C of the ITA
will be levied No exemption, deduction or set-off of any carried
forward losses No reopening of assessment due to disclosure under
this scheme - Declaration will not affect finality of completed
assessment
32. Who can declare Failed to furnish a return of income u/s.
139 Failed to disclose in a ROI furnished by him under the I T Act
before the commencement of this legislation. It has escaped
assessment by reason of the omission or failure on the part of the
assessee to file the return of income
33. Procedure- Rate of Tax etc Declaration to be filed by 30
sep 2015 Tax at 30% of the value of the undisclosed foreign asset
Penalty at 100% of the above tax. The payment of the above tax and
penalty shall be made on or before the date notified ie 31 Dec 2015
and proof of payment to be submitted to the persons notified
34. Procedure-How to declare The declaration to be made in Form
6 The above declaration is to be made to the CIT Delhi This
declaration is to be signed by the authorised person as stated in
section 62(2).
35. Procedure of declaration If the above tax is not paid
before the due date, the declaration filed will be deemed never to
have been made. Any amount of tax and penalty paid by the person
making the declaration shall not be refundable. Amount of
undisclosed investment shall not be included in the computation of
total income Misrepresentation or suppression of facts by the
declarant would make declaration void.
36. Benefit of Scheme No wealth tax shall be payable in respect
of the assets declared under the voluntary declaration scheme sec69
No prosecution for declarants under the UFIA Act Contents of
declaration cannot be used as evidence for imposing penalties under
any other law or for prosecution under- ITA , Wealth tax, FEMA,
Companies Act 2013, or Customs Act 1962
37. Who can not declare Order of detention under Conservation
of Foreign Exchange and Prevention of Smuggling Activities Act,
1974. Prosecution has been launched for any offence punishable
under Chapter IX or XVII of the Indian Penal Code, the Narcotic
Drugs and Psychotropic Substances Act, 1985, the Unlawful
Activities (Prevention) Act, 1967 or the Prevention of Corruption
Act, 1988. Person notified u/s. 3 of the Special Court (Trial of
Offences Relating to Transactions in Securities) Act, 1992.
38. When declaration cant be made One time window not open for
the following persons:- Any person against whom notice of
assessment has been issued under ITA Any person against whom time
limit for furnishing of notice of assessment has not expired due to
search, survey under the ITA Any person against whom information
has been received in respect of UFA from competent authority under
a formal pact (cases like account holders of HSBC Geneva which has
not been disclosed, whether or not having any balance)
39. The Process-In a Nutshell - Declaration in form 6 till
30/09/15-to CIT Delhi or Online - UFIA for any AY prior to 2016-17
for which the resident either failed to furnish a return or did not
disclose or the income escaped assessment. - By October 31, a
designated officer will intimate the declarant if the authority has
received information under the tax treaty, - Revised declaration in
15 days of receipt of intimation . If declarant has received the
intimation on October 10, he can file a revised declaration or
before October 25. - In all case the declarant is required to pay
the requisite tax and penalty on the assets eligible for
declaration by December 31, 2015. The assets will be valued on fair
market price.
40. FEMA and UFIA
41. FEMA and UFIA Foreign assets held in accordance with FEMA -
examples Any resident individual (under FEMA or ITA or both) who is
holding assets abroad acquired from LRS Any Indian resident company
holding assets abroad under Overseas Direct Investments (ODI)
Guidelines A resident person who continues to hold assets abroad
which were acquired when non-resident as permitted under section
6(4) of FEMA Inheritance of foreign asset by Indian resident from
non-resident relative and continues to hold the same as permitted
under section 6(4) of FEMA
42. FEMA and UFIA Onus is on the Tax Payer to prove that they
are holding foreign assets legally and proper disclosures / filings
were made. If so, the Income-tax Commissioner / RBI / Enforcement
Director under FEMA cannot take any penal action / prosecution
without any proper enquires However, Now it is proposes that the
Enforcement Director under FEMA can directly seize equivalent value
of Indian assets (without asking any questions) and merely on the
reason to believe or suspicion similar amendments are also proposed
under Prevention of Money-laundering Act, 2002 (PMLA) vide Finance
Bill 2015 Black Money is different from criminal money Harsh
implications and arbitrary penalties under UFIA read with proposed
PMLA amendment not justified
43. CASE STUDIES
44. Case Study 1 A person has a foreign bank account in which
following undisclosed income has been deposited over several years.
20 sep 1975 $ 100000 1 jan 1980 $ 50000 ?1.He has spent the money
in the account over these years and now it has a balance of only
$500. Does he need to pay tax on this $500 under the declaration.
?2. What would be position if he withdraw all money and close the
account in 2014.
45. Case Study- 2 A person inherited a house property in 2003-
04 from his father who is no more. Such property was acquired from
unexplained sources of investment. The property was sold by the
person in 2011-12. Does he need to declare such property ? what
will be the fair market value of such property for the purpose of
declaration?
46. Case Study - 3 Mr George is a non-resident. He was a
resident of India earlier and had acquired foreign assets out of
income chargeable to tax in India which was not declared in the ROI
in respect of that income. Can that person file a declaration under
Chapter VI of the Act? Ans - Yes
47. Case Study- 4 Mr Patel is a resident now. He was a non-
resident earlier when he had acquired foreign assets (which he
continues to hold now) out of income which was not chargeable to
tax in India. Q-Does Mr Patel need to file a declaration in respect
of those assets under Chapter VI of the Act? A- No
48. Case Study- 5 Ms Dhawal resident earned income outside
India from his house property in US .It was deposited in his
foreign bank account. The income was charged to tax in the foreign
country when it was earned but the same was not declared in the
return of income in India and consequently not taxed in India. Q-
Does he need to disclose such income? Will he get credit of foreign
tax pa id? 26
49. SUMMARY
50. Summary of Key Highlights of the UFIA Act 1. 2. 3. Act is
effective from 1 July 2016 onwards (Assessment Year 2016-17) and
extends to whole of India Applicable to all persons resident in
India. In case of Individuals, it applies to ordinary resident
under ITA Flat 30% tax rate (without surcharge and cess) on the
value of total undisclosed foreign income and asset, Asset to be
valued on Current FMV No exemption, deduction , set-off and carry
forward of losses under ITA, no set off foreign tax credit will be
allowed on UFIA Additional 300% penalty for non-disclosure of
foreign income or an asset. 4. 5.
51. 6. 7. 8. 9. 10. Rs.10 Lakhs penalty for non-filing of
return / not furnishing complete details of foreign assets.
Prosecution for various violations (including abetment) including
rigorous imprisonment from 3 to 10 years. Tax and penalty proposed
to be calculated at current value of assets as per rules instead of
purchase value , Bank asset value is total of deposit original
purchase price One time compliance opportunity to be availed before
30 sep 2015, by paying 30% tax and equal penalty, no interest and
prosecution Only bank account up to total balance of Rs 5 lac
exempt Summary of Key Highlights of the UFIA Bill