PROPOSED ANTI-BLACK MONEY LAW
1 Backdrop
Stashing away of black money abroad has been a matter of great debate and of deep concern to the nation.
Modi Government came into power on one of the promise of curbing and bringing back the black money parked aboard by certain people. The Finance Minister, while presenting his budget on 28th February 2015, has stated that immediate action is required to effectively deal with problem of black money. The Supreme Court has also put pressure on the Government to take action against tax evaders who have black money stashed away. There was also public demand to have Anti Black Money Law. In back ground of this the Government has introduced “The Undisclosed Foreign Income & Assets (Imposition of Tax) Bill in the parliament on 20th March 2015.
2 Objectives and purpose
– To tax undisclosed foreign income and assets acquired from such undisclosed foreign income
– To act as detrimental from creating undisclosed foreign income and asset outside India and to punish the persons indulging in generating black money outside India.
– To prevent illegitimate income and assets kept outside India from being utilized in ways which are detrimental to India’s social, economic and strategic interests and its national security.
3 Effective Date and Applicability
– The black money bill shall come into force with effect from 1/4/2016.
– The bill which has 88 sections shall apply to the whole of India.
4 Salient features of the bill
(a) Regular Provision
– Flat tax @30% on undisclosed foreign income and asset of an ordinarily resident in India.
– No time limit to tax foreign income / assets escaping assessment
– No Wealth Tax on undisclosed foreign asset
– No interest under section 234A, 234B & 234C is chargeable
– Fixed penalty upto 3 times of tax computed
– Prosecution with imprisonment between 3 to 10 years
– Proposal to amend Prevention of Money Laundering Act (PMLA) 2002 to include offence of tax evasion as a scheduled offence under PMLA.
– The bill shall apply to all persons resident in India. Non residents are outside the purview of the Bill.
– The bill shall apply to both undisclosed foreign income and assets including ownership interest in any entity.
– Disallowance under section 29 to 43C and section 57 to 59 of Income Tax Act are not covered.
– Transfer pricing adjustment under section 92C of the Income Tax Act shall not be taxed under the bill.
– Appeal to higher authorities are available
(b) One Time Compliance Scheme (OTCS)
– One Time Compliance opportunity is for a limited period to persons who have any undisclosed foreign assets which has been acquired from the income not disclosed for the purpose of income tax.
– The scheme is not for disclosure of undisclosed income.
– Any person may file declaration before the specified tax authorities within specified period and makes payment of tax @30% and equal amount by way of penalty.
– No interest under section 234A to 234C of Income Tax Act will be charged.
– Persons availing OTCS will not be prosecuted under stringent provisions of the new act.
– Exemption, deduction, set-off and carry forward loss etc shall not be allowed.
– Declaration under OTCS cannot be used as evidence under the Wealth Tax Act, FEMA, Companies Act or Customs Act.
– Wealth tax shall not be paid on any assets disclosed under OTCS
– Certain persons are not entitled to OTCS such as who have been detained under Smuggling Act, Notified under Section 3 of the Special Court against whom prosecution has been launched under Indian Penal Code, Narcotic Drug Act and Prevention of Corruption Act etc.
5 What is undisclosed foreign income and assets
– Any asset located outside India of which Assessee may be owner or beneficial owner of such asset including financial interest
– Any asset shall be deemed to be undisclosed asset situated outside India if the Assessee does not give satisfactory explanation about the source of investment in such asset
– Undisclosed foreign income and asset shall be the aggregate of the amount of undisclosed income from a source outside India and Fair Market Value of an undisclosed foreign asset
6 How to compute tax liability
– Tax at rate of 30% on the undisclosed foreign income or asset in the year in which the same came to the notice of Assessing Officer
– No expenditure shall be allowed as deduction from undisclosed foreign income / assets
– No loss can be set-off against such as income or asset
– Any income which has been assessed to tax under the Income Tax Act shall be reduced from foreign undisclosed foreign asset if the asset is acquired from such income
7 Penalty
– 3 times of tax payable on undisclosed income in case of non-disclosure foreign income and asset
– Rs.10 lacs if the Assessee fails to disclose foreign assets or income in his return or fails to furnish return.
– Equal amount of tax arrears if there is a default in payment
– Rs.50,000 to Rs.2,0,000 if person fails to answer any questions or give evidence before the tax authorities.
8 Prosecution
– 3 years to 10 years if Assessee willfully attempts to evade any tax, penalty or interest
– 6 months to 7 years for false statement in verification or delivering false accounts or statement…
– 3 years to 10 years for second and subsequent offence
9 Suggestions
– The proposed provisions are very harsh and stringent. To prevent misuse of these provisions, small Assessees may be exempted under the Bill but can be taxed under the provisions of the Income Tax Act.
– Clarification should be made regarding the exact nature of foreign income earned and foreign asset acquired.
– If the Assessee establish a reasonable cause in not disclosing foreign income or foreign asset, then penalty may be reduced from 90% to 30% and prosecution may be avoided.
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