Black Money Act - Sandeep Jhunjhunwala - ICSI Study Circle
1. Contents
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Annexures
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The Black Money (Undisclosed Foreign Income & Assets)
and Imposition of Tax Act, 2015
ICSI Study Circle Meeting - November 19, 2015
Presented by: Sandeep Jhunjhunwala, FCA
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Contents
The challenge of Black Money
Background
Who is liable to pay tax
Charging provisions
Meaning of undisclosed foreign income/ assets
Valuation
Consequences
Tax management and Assessment procedures
One time compliance opportunity
Amendments in other acts
Potential sources of info reg. foreign income/
assets
Annexure
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November 19, 2015
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TAX EVADED MONEY ie BLACK MONEY - A PARALLEL ECONOMY
Generated through illegitimate
means/ activities
Accumulated by failure to pay
dues to public exchequer
The challenge of Black Money
Global Financial Integrity study - India among top
10 developing countries with Black Money. Some
reports claim a total exceeding USD 16.4 trillion
stashed in Switzerland
Total outflow since independence until 2008 was
USD 462 billion; Recent media reports - 1195
Indians held wealth/ assets USD 4.2 billion (INR
25,000 crore) in HSBC Geneva itself
As per World Bank Report - India’s shadow
economy close to 1/5th of economic output -
Perennial drain of nation’s resources
Sources of black money as per Global
Financial Integrity study:
Corporate tax evasion - 60 percent, Criminal
activities - 35 percent, Corruption - 5 percent
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November 19, 2015
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The Global landscape
Content
Global Initiative on Base Erosion Profit Shifting (BEPS) and country by country reporting for
preventing tax avoidance
Increase in information exchange between countries:
Foreign Account Tax Compliance Act (FATCA)
OECD published a standard for automatic exchange of information in tax matters
Peer to peer agreements with the individual countries to combat tax evasion
Several countries (including India) now require foreign income and foreign asset reporting
Countries offering voluntary disclosure opportunities and imposing criminal sanctions in relation to
tax issues - "Australia’s Project Do it: Disclose offshore income today” - Year 2014
Increasing scrutiny of High net worth individual’s tax affairs by tax administrations around the world
ICSI Study Circle Meeting
November 19, 2015
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The Build up to Black Money Act and thereafter
Content BJP’s Election Manifesto promised prioritising action against Black money stacked offshore:
"By minimizing the scope for corruption, we will ensure minimization of the generation of black
money. BJP is committed to initiate the process of tracking down and bringing back black money
stashed in foreign banks and offshore accounts. We will set up a Task Force for this purpose and to
recommend amendments to existing laws or enact new laws. The process of bringing back black
money to India what belongs to India, will be put in motion on priority. We will also proactively engage
with foreign Governments to facilitate information sharing on black money."
Budget 2015 also focussed on black money in a big way. Buoyed with the victory in obtaining
information from the Swiss authorities on undisclosed accounts of Indians in Swiss banks, the
Finance Minister reassured the country:
"A very important dimension to our tax administration is the fight against the scourge of black money.
A number of measures have already been taken in this direction. I propose to do much more.”
Prime Minister Shri Narendra Modi at the G20 Summit, in Antalya (Turkey) on November 14, 2015:
“In India, my government has zero tolerance on corruption and black money. We have enacted a new
law to deal with undisclosed assets and income kept abroad. We have also entered into a number of
bilateral tax treaties. We need greater international cooperation for return of illicit money to the
country of origin. We must address the barriers of excessive banking secrecy, and complex legal and
regulatory frameworks”
ICSI Study Circle Meeting
November 19, 2015
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Evolution of Black Money Act/ related compliances
Date Event
March 20, 2015 Finance Minister introduces the Undisclosed Foreign Income and Assets
(Imposition of Tax) Bill, 2015 (“Bill”)
May 11, 2015 Lok Sabha passes the Bill with certain amendments
May 13, 2015 Rajya Sabha passes the Bill without any amendment
May 26, 2015 The President gives assent to the Bill
May 27, 2015 Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act,
2015 (“BMA”) published in the Gazette of India
July 1, 2015 BMA to come into force and becomes operative wef tax year/ assessment year
2016-17 (ie April 1, 2015 to March 31, 2016)
July 2, 2015
Explanatory Notes on provisions relating to tax compliance for undisclosed foreign
income and assets as provided in BMA - Circular No 12 of 2015
Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax
Rules, 2015 published in the Gazette of India
July 6, 2015 Clarifications on Tax Compliance for Undisclosed Foreign Income and Assets -
Circular No 13 of 2015
September 3, 2015 Clarifications on tax compliances for undisclosed foreign income and assets -
Circular No 15 of 2015
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ICSI Study Circle Meeting
November 19, 2015
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Preamble and Structure
An Act to make provisions to deal with: BMA has 88 sections divided into
7 chapters as below:
Chapter 1
Preliminary
Long Title Structure
Chapter 2
Basis of
Charge
Chapter 3
Tax
Management
Chapter 4
Penalties
Chapter 5
Offences and
Prosecution
Chapter 6
One-time
disclosure
Chapter 7
General
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
the problem of the Black money that is
undisclosed foreign income and assets
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Preamble and Structure
Objective: To tax “undisclosed foreign income and
foreign assets” of ordinarily resident taxpayers, not
reported under existing Income tax Act (ITA)
BMA
Regular Provisions
Tax (flat 30*
percent), Interest,
Penalty (300
percent of tax),
Prosecution,
Confiscation under
the Prevention of
Money laundering
Act, 2002
[Sections 3 to 58;
73 to 88]
[Division - Three]
Key Features
Content
One-time
compliance
scheme - Voluntary
declaration of
undisclosed
foreign assets
(limited period)
Tax @ 30 percent*,
Penalty (100
percent of tax), no
interest/
prosecution
[Sections 59 to 72,
79]
[Division - Two]
Coverage: All persons “resident and ordinarily
resident” in India and holding undisclosed foreign
income and assets
TP adjustments not covered: Variations made
under Section 92C of the Income tax Act not
covered
Exception: Failure to report Bank accounts outside
India with an aggregate balance of INR 5 lakhs at
any time during the year
Black Money vs Red Money: BMA makes no
distinction as it applies to undisclosed foreign income
and assets. OTCS shall apply to ‘black money’ and
not ‘red money’ in specified cases (6 Acts)
*Section 3(1) of BMA provides that a flat 30 percent tax is to be charged (irrespective of concessional rate, say for long term
capital gains. There is no provision for increase in tax by surcharge, Education Cess (EC) or Secondary Higher Education
Cess (SHEC). This leads to an anomalous situation where white money and domestic black money attracts higher effective
tax rate than black money stashed away abroad.
ICSI Study Circle Meeting
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Who is an Assessee?
Section 2(2)
As per Section 2(15) of the BMA - meaning of words and expressions not defined in BMA and
defined in the ITA shall derive meaning from the latter. As the term “person” has not been defined
in the BMA, its definition as per Section 2(31) of the ITA shall be adopted.
“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 ITA, by whom tax in respect of
undisclosed foreign income and assets, or any other sum of
money, is payable under BMA and includes every person
who is deemed to be an assessee in default under BMA
Individual who qualifies to be a Resident and Ordinarily
Resident (‘ROR’) in India under ITA
A Company, Firm, HUF, AOP, BOI, local authority and every
artificial juridical person resident in India under ITA
A foreign company, having a Place of Effective Management (POEM) in India, shall become tax resident
in India and covered under the BMA. POEM means a place where key management and commercial
decisions necessary for conduct of business, of an entity as a whole are in substance are made. Since
POEM has become the test for corporate residence in India, the impact of BMA has a wider scope than
intended.
Section 2(2) of BMA read
with Section 6(6) and
Section 2(31) of ITA
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Residency Conditions
Individual who qualifies to
be a Resident and
Ordinarily Resident (‘ROR’)
in India under ITA
How does
one become
an ROR?
Person who has stayed for 182 days or more in a tax year; OR
Stayed in India > 365 in preceding 4 years and > 60 days in the
current year
Stay in India > 729 days in prior 7 years; OR
Is resident in India in 2 out of prior 10 tax years
AND
In summary, an individual who is ROR in India is covered under the BMA
A Company, Firm, HUF,
AOP resident in India
How does it
become a
resident?
A Company is incorporated in India or during the year has POEM in
India
For other persons is deemed to be resident in India, if control and
management is situated wholly in India (NOT dependent on the
residential status of partners/ members)
A foreign company, having a POEM in India, shall become tax resident in India and covered under
the BMA
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Charging Provision
Undisclosed foreign income and asset (“UFIA”) pertaining
to the Assessment Year 2016-17 liable to tax at 30 percent
Income from a source located outside India, not disclosed
in Return of Income (“ROI”) filed
Value of the undisclosed asset located outside India
which comes to AO’s notice during the previous year on or
after July 1, 2015
+
Income from a source located outside India, in respect of
which a ROI is not filed
+
Basis of Charge
(Section 3)
Income included under UFIA under BMA shall not form part of total income under ITA [Section 4(3)].
BMA to come in force from July 1, 2015, hence UFIA for the period April 1, 2015 to June 30, 2015 to
be taxed under ITA
Total UFIA
[Section 2(12) read with
Section 4(1)]
1. If income from foreign source not been disclosed in the ROI pertained to years prior to AY 2016-17, the same would not be taxed under
the BMA unless it has resulted into acquisition of any asset located outside India. The same would have to be taxed under ITA only by
reassessment or assessment under Section 148 of ITA by invoking the extended time limit of 16 years under ITA.
2. Further, if the foreign income is not disclosed initially and the ROI is subsequently rectified by way of revised return, such income should
not then qualify as ‘undisclosed’.
3. The requirement under BMA is disclosure in ROI and there is no requirement that such income should have been offered to tax.
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An asset located outside India (“Foreign Asset”) including
financial interest in any entity. Indian undisclosed assets
are not covered.
Assessee has no explanation about the source of
investment in such assets or the explanation given by him is
in the opinion of the Assessing Officer, unsatisfactory
+
Held by the assessee in his name or in respect of which he
is the beneficial owner, and
+
Charging Provision (Contd)
Undisclosed asset
located outside India
[Section 2(11)]
Refer Annexure for background on disclosure of foreign assets in ROI. The asset may be created out
of Indian sourced income or foreign sourced income. The country of source of income is irrelevant.
Value to taken of the previous year in which the asset
comes to the notice of the Assessing Officer (except under
OTCS - July 1, 2015)
Value of undisclosed
asset
[Section 2(14) read with
Section 3(2)]
Means the Fair Market Vale (FMV) - Manner of
determination has separately been prescribed
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Foreign income pertaining to the period after March 31, 2015 which is not disclosed in the ROI but disclosed in the course of assessment or
before settlement commission may still be regarded as undisclosed income, assessable under BMA.
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Exclusions from
undisclosed foreign
income
[Section 4(2)]
Any variation made in foreign income during the
assessment/ reassessment proceedings, under the
following provisions of ITA
Section 29 to 43C Section 57 to 59 Section 92C
Profits or gains
from business/
profession
Income from other
sources
Transfer Pricing
provisions/ ALP
Computation
Charging Provision (Contd)
Exclusions from
undisclosed foreign
income
[Section 4(3)]
Income included in UFIA under BMA shall not form part of
the total income under the ITA
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*If the assessee furnishes evidence that the asset has been acquired from the income assessed or is assessable, as the case
may be, to tax
Computation of total UFIA (Section 5)
Charging Provision (Contd)
Reduction of income already assessed under the ITA* from
the value of asset
Reduction of income assessable/ assessed under the BMA*
from the value of the asset
Value of Undisclosed
asset located outside
asset
Taxed on gross basis - No deduction of expenditure/
allowance
No set-off of business losses
Undisclosed foreign
income
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Availability of relief from double taxation, tax reliefs/credits
likely (basis the FAQs released by CBDT)
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November 19, 2015
To some extent, this goes against the concept of ‘income’.
Tax authorities may justify such aggressive approach by contending that cases of tax evasion
needs strict/ harsh consequences
Case of trader in securities churning investments multiple times during the year?
+
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1. Assessee acquires house property located outside India in the previous year relevant to
Assessment Year 2010-11 for INR 50 lacs and did not disclose the asset in the ROI filed for
Assessment Year 2010-11
2. Out of INR 50 lacs, INR 20 lacs was offered to tax in the ROI filed for Assessment Year 2010-
11 and earlier years
3. AO notices such undisclosed asset in the Assessment Year 2017-18 wherein the FMV of the
asset was INR 1 crore
4. Amount chargeable to tax under BMA = INR 1 crore less INR 40 lacs (ie 20/50*100) = 60 lacs
In case of immovable property, the amount of deduction will be proportionate as illustrated
below [Illustration given under Section 5(2) of BMA]
Charging Provision (Contd)
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Consider a case of housewife taxpayer who was non-resident and became resident in the recent
past. The housewife holds certain investments in foreign assets out of past savings and gifts.
She does not have any income chargeable to tax in India and she has therefore never filed ROI
in India. Whether non-filing of ROI due to the fact that taxpayer has no income chargeable to tax
will make income as UFI?
Where the taxpayer is not required to furnish ROI, there should be no difficulty/ adverse consequences
under BMA. However, fourth proviso to Section 139 of ITA requires filing of tax return even when a
person has no chargeable income but merely holds foreign assets. This case highlights an example
where the BMA may cover bonafide taxpayer though there may not be any element of tax evasion.
Case Study - I
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Consider a situation where a person was an Indian resident. He had foreign income which was
undisclosed. Then he became a non-resident of India. Will BMA apply?
The Black money law should not apply to the person as he is no longer an assessee under this law.
However, if the person had violated Income-tax Act or FEMA, those violations continue and he would
be exposed to the penal provisions of both the laws. New Sections 13 (1A) and 37A of FEMA [brought
about by Finance Act, 2015] would apply even if he has become a Non-Resident. Consequences under
FEMA are much harsher than under BMA (please see illustration below)
Case Study - II
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Monetary Consequences (risk of prosecution is additional)
Section 3 of BMA Tax @ 30 percent 390,000
Section 41 of BMA Penalty @ 90 percent 11,70,000
Total (Under BMA, no discretion) 15,60,000
Section 13(1A) of
FEMA
Penalty - 3 times (discretionary) 39,00,000
Confiscation (no provision for return) 13,00,000
Section 37A of FEMA Seizure Indian asset (may be returned) 13,00,000
Total (Under FEMA, discretion with respect to penalty) 65,00,000
GROSS TOTAL (620 PERCENT OF BASE AMOUNT) 80,60,000
Combined effect of FEMA and BMA
Illustration:
Mr X, an Indian Resident sent abroad INR
10 lakhs by hawala when the exchange
rate was INR 50 = USD 1 and got USD
20,000. On July1, 2015, the AO gets this
information. Current rate is say INR 65
and the value of the foreign undisclosed
asset is INR 13 lakhs.
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Mr. D is a doctor/ surgeon in India. In the year 2010, he operated on a foreign patient in India.
Hence his income is Indian sourced income. The NR patient directly deposits INR 50 lakhs to the
credit of the doctor in a Swiss Bank. In the year 2014, Mr D goes abroad and spends away entire
amount. What are the implications under BMA?
BMA should not apply to India sourced income. Hence the doctor’s professional fees should not be
covered by this law. Also, BMA covers only assets in existence when the AO finds out the same. Since
the doctor has already spent the money, there is no asset outside India. Hence BMA cannot be applied.
This interpretation is supported by combined reading of Sections 2 to 5 of BMA and also keeping in
mind the objective of the law (Note: ITA provisions should continue to apply to such India sourced
income)
Case Study - III
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An Indian Company has certain assets in India and certain assets outside India. During the
course of assessment for AY 2016-17, the AO discovers that the Company had investments in a
Swiss Bank account which were not disclosed in its tax returns. The Company is ready and
willing to pay tax and penalty on those assets under BMA but wants to bring the asset into its
books.
What accounting entry needs to be passed? Audited accounts? Companies Act, 2013? true and
fair view of the financial position?
And, if it is a persistently loss making company, will it be required to pay MAT if it brings the
asset into its books of account?
Case Study - IV
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Mr Harry was non-resident in India till 2012. He returned to India and kept Rs 1 crore in a
Current A/c with HSBC India out of the money earned abroad. He forgot to disclose this amount
in tax return.
Can the asset be covered under BMA?
Section 2(11) and 2(12) of BMA - Assets located outside India!
Case Study - V
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Charging Provision - Key takeaways
Undisclosed asset located outside India [Section 2(11)] - Meaning of financial interest in any entity - Neither
defined under BMA nor ITA - Refer instructions to filling form ITR - Discussed in Annexure
Undisclosed asset located outside India [Section 2(11)] - Whether AO has been empowered under the BMA
to question the FMV of the foreign asset disclosed by the assessee in the ROI and supported by valuation
report?
Exclusions from undisclosed foreign income [Section 4(3)] - Vice-versa ie would income included in the total
income under ITA be excluded from the total UFIA under BMA?
Under BMA, non-disclosure of the income in the ROI is triggering point (Section 3 and 4) - What if tax has
been paid on such income, for example - credit for taxes paid in foreign jurisdiction?
Exemption from wealth tax implications in respect of undisclosed asset outside India not voluntarily disclosed
but detected by the tax officer and assessed to tax?
On NR becoming resident, the income for past years may arguably not be treated as undisclosed foreign
income. But such person needs to be mindful about consequences with reference to value of undisclosed
asset located outside India after becoming resident.
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Valuation of assets
The Rules prescribe valuation methods for different assets located outside India effective July 2, 2015
These Rules prescribes different methods on determination of Fair Market Value (FMV) of assets
Valuation date for determining FMV in case of:
• One time Compliance Window - July 1, 2015
• Assessment BMA - 1 April of relevant previous year in which undisclosed asset comes to the
notice of the tax authority
Detailed valuation rules provided under Rule 3 - Refer Annexure
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A house property (H1) located outside India was bought in 1997 for 20 lakh rupees. It was sold in
2001 for 25 lakh rupees which were deposited in a foreign bank account (BA). In 2002 another
house property (H2) was bought for 30 lakh rupees. The investment in H2 was made through
withdrawal from BA. H2 has not been transferred before the valuation date and its value on the
valuation date is 50 lakh rupees. Assuming that the value of BA as computed under Rule 3(1)(e)
is 70 lakh rupees, what would be the fair market value (FMV) of all these assets:
FMV of H1: (Higher of Rs 20 lakhs and 25 lakhs) less Rs 25 lakhs (invested in BA) = Nil
FMV of H2: (Higher of Rs. 30 lakh and 50 lakh) = Rs. 50 lakh
FMV of BA: Rs 70 lakhs less Rs 30 lakhs (invested in H2) = Rs 40 lakhs
Case Study - VI
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What are the consequences?
• Under Section 234A - for
not filling or disclosing
incorrect foreign income
and assets
• Under Section 234B and
234C - for default in
payment of advance tax
• On the amount of
undisclosed income from a
source located outside
India and not on the value
of undisclosed asset
located outside India
Interest
(Section 40)
Concealment
Penalty
(Section 41)
Prosecution
(Section 48)
• 300 percent/ 3 times of the
tax on UFIA (except under
OTCS - 100 percent)
• Effective total tax and
penalty = 120 percent of
UFIA
• Use of “May” - Penalty is
discretionary. However,
statement of objects and
reasons seems to suggest
mandatory penalty.
Bonafide cases may not
justify stiff penalty.
• Prosecution of offences to
be in addition to, not in
derogation with any other
Indian laws (Section 48)
• Principle of Mens-rea to be
applied and it is for the
assessee to prove absence
thereof (Section 54) -
Similar to Section 278E of
the ITA
• No exception provided for
“reasonable cause” unlike
ITA
Currently no provision under BMA for compounding of offences
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Penalties and Prosecution (Contd)
Nature of default Penalty Prosecution
Non disclosure of foreign income and asset (Section 41)
If tax has been computed in respect of UFIA 3 times the amount of tax
payable
Nil
Failure to furnish ROI (Penalty - Section 42, Prosecution - Section 49)
If the assessee fails to furnish ROI under ITA before end of AY in
following cases:
i. Holds any foreign asset held as beneficial owner or otherwise
ii. Was beneficiary of any foreign asset
iii. Had foreign income
INR 10 lakh
(Section 42 and 43)
No penalty shall be levied
under this Section 42 and
43, if any foreign asset,
being one or more bank
accounts have an
aggregate balance which
does not exceed INR 5
lakh at any time during
the previous year
6 months to 7
years and fine
for willful
default
(Section 49 and
50)
Furnish incomplete/ inaccurate ROI (Penalty - Section 43,
Prosecution - Section 50)
If the assessee furnishes ROI under ITA but fails to furnish any
information or furnishes inaccurate particular relating to:
i. Any foreign asset held as beneficial owner or otherwise
ii. Was beneficiary of any foreign asset
iii. Had foreign income
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Penalties and Prosecution (Contd)
Nature of default Penalty Prosecution
Default in payment of tax arrear (Section 44)
Continuing default by assessee in making payment of tax Amount of arrear of tax Nil
Failure to furnish documents before tax authorities (Section 45)
If any person fails to:
a) Answer any question asked by tax authorities
b) Sign a statement which he is legally bound to do so
c) Attend or give evidence or produce books of accounts
INR 50,000 to INR
200,000
-
Wilful attempt to evade taxes (Section 51)
(a) If an individual willfully attempts to evade any tax, penalty or
interest
(b) If any other person willfully attempts to evade any tax, penalty
or interest
Willful attempt defined under Section 51(3) of BMA – Refer
Annexure
Nil (a) 3 years to
10 years
and fine
(b) 3 months
to 3 years
and fine
Furnishing of false statement in verification (Section 52)
If a person makes false statement in verification or delivers false
accounts or statements
Nil 6 months to 7
years and fine
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Penalties and Prosecution (Contd)
Nature of default Penalty Prosecution
Punishment for abatement (Section 53)
Abetment to make and deliver false ROI, account, statement or
declaration relating to tax payable
Nil 6 months to 7 years
and fine
Punishment for second and subsequent offences (Section 58)
If a person, who has been convicted for an offence, is again
convicted for an offence under the BMA
INR 5 lakh to INR 1
crore
3 years to 10 years
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Penalties and Prosecution - Key takeaways
Interest under Section 234A chargeable even if ROI has been filed on or before due date (in case foreign
sourced income is not disclosed)
Except for cases of voluntary declaration, stringent provisions for prosecution for various defaults entailing
imprisonment of maximum period of 7 to 10 years and fine.
Penalty on filing of ROI containing details of foreign income/ assets after specified time under ITA
Penalty under Section 42 of BMA of INR 10 lacs
Penalty under Section 271F of ITA of INR 5,000
In addition to any prosecution proceedings under any other statute
Assumption of “Mens rea”
Approval from superior tax authorities required for prosecution
No exception provided for “reasonable cause” unlike ITA
No provision for compounding of offences
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Tax Management and Assessment Procedures
The language of these provisions are largely on lines of ITA, Income tax authorities to administer
Appellate/ Remedial options available to taxpayers - similar to ITA - appeal to CIT(A)/ Tribunal/ High Court/
Supreme Court for substantial question of law, rectification of mistakes, revision of orders, recovery of
arrears etc
No specific time limit has been prescribed for issue of notice for any assessment year on or after AY 2016-17
by the AO under Section 10(1) of BMA - Contradictory with 16 years under ITA
The AO can issue notice under Section 10(1) of BMA on the basis of receipt of information from any source -
Reasonable (should stand tests of judicial review), not gossips/ allegations/ imagination/ rumours!
Unlike ITA, no provisions exist for tax authorities to record any reasons or forming a belief about escapement
of income or for obtaining approvals of higher authorities.
No requirement to file a separate return/ form under BMA
Assessment proceedings to be completed within 2 years from the end of tax year of initiation, subject to
specific exclusions
It appears 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 BMA
Assessment of undisclosed income under BMA stands independent of and unconnected to assessment/
reassessment under ITA. Both can be proceeded with concurrently or independently.
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Potential sources of info reg. foreign income/ assets
Information collaborated from other internal departments such as indirect tax, RBI, FEMA, etc.
[Service tax - Reconciliation between turnover as per ST return and ROI?]
Reporting made under FATCA or comparable regulations
Exchange of information mechanism in tax treaties. Sec 83 of BMA alia authorizes tax authorities to
make use of any information obtained/ collected under ITA
Collateral proceedings under other laws (Customs Act etc)
Action initiated by the Enforcement Directorate (ED), if any
Assessment and other proceedings of taxpayer under ITA
Calling for general information from Banks/ financial institutions etc.
News item published in a newspapers/ magazines
Search/ Seizure/ Survey action under ITA
Information from digital media/ social media
Content
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November 19, 2015
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Summary
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One Time Compliance Opportunity
Voluntary declaration in respect of undisclosed assets (not undisclosed income) located outside India
which have been acquired from income chargeable to tax for any AY prior to AY 2016-17. A one-time short
compliance window was provided for taxpayers to come clean.
Tax payable at flat
rate of 30 percent
on value of
undisclosed asset
Penalty restricted
to 100 percent of
tax payable
No interest to be
levied
Complete
immunity from
interest (under
Section 234A /
234B / 234C) and
prosecution
Undisclosed
investment in
foreign asset not
be included in
total income
under ITA
Provision can be availed only ONCE!
Compliance Window is now closed!! - Govt received 638 declarations with a disclosure of Rs 3770 crores
Notification dated July 01, 2015, the Central Government had notified:
• September 30, 2015 - last date for making declaration
• December 31, 2015 - last date for making payment of tax/ penalty
• Declaration in Form 6 - May be filed with the Commissioner of Income tax, Delhi or online on Income
tax department’s website using the declarant’s DSC
Content
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November 19, 2015
Exemption from
levy of wealth tax
for past years in
respect of
declared assets
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One Time Compliance Opportunity
No refund of tax and penalty so paid (Section 66)
Declaration so filed shall not be considered as an evidence against the declarant for initiating
penalty/ prosecution proceedings under the ITA, Wealth Tax Act, FEMA, Companies Act, 2013
or Customs Act, 1962 (Section 67) - Only 5 Acts, No immunity under any other Act
The protection is only for the declarant. Thus, if one partner in a partnership firm makes declaration, other
partners and the partnership firm itself will be exposed to all the consequences. One should consider
properly before making declaration.
Assessee does not have the right to reopen any assessment/ reassessment completed under ITA or Wealth
Tax Act to claim any relief under the BMA in respect of declared UFA (Section 65)
Risk of re-assessment of UFIA for past 16 AY’s
Other key provisions
Can declaration be considered as an evidence under PMLA?
Content
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November 19, 2015
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One Time Compliance Opportunity
Persons not entitled to avail such opportunity (Section 71)
Against whom the notice of assessment has already been issued under the ITA and proceeding is
pending before any tax authority
Against whom the time limit for furnishing of notice of assessment has not expired pursuant to
search, requisition or survey, as the case may be, carried out under ITA
Against whom information has been received under DTAA, in respect of such undisclosed asset (in
case of undisclosed bank account, it may or may not have any balance)
In respect of whom an order of detention has been made under the Conservation of Foreign Exchange
and Prevention of Smuggling Act, 1974 (subject to certain conditions)
Who is subject to prosecution for any offence which is punishable under Chapter IX or Chapter XVII of
Indian Penal Code, the Narcotic Drugs and Psychotropic Substances Act, 1985, the Unlawful
Activities (Prevention Act), 1967, the Prevention of Corruption Act, 1988
Who has been notified under Section 3 of the Special Court (Trial of Offences Relating to Transactions and
Securities) Act, 1992
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November 19, 2015
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One Time Compliance Opportunity - Key Takeaways
Total tax and penalty outgo - 60 percent of the value of undisclosed asset
No additional interest under Section 234A, 234B and 234C of the ITA
If notice of assessment issued / proceeding is pending in respect of a particular year, whether
voluntary declaration cannot be made for any year?
Implications under Foreign Exchange Management Act, 1999 or Money Laundering Act or any other
applicable statutes - No immunity!
Implications under the provisions of the country in which the asset may be located would need
independent verification
Tax and Penalty paid in pursuance of the declaration is non-refundable - Needs thoughtful
evaluation before declaration and payment of tax/ penalty
Content
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November 19, 2015
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Prevention of Money Laundering Act, 2002 (“PMLA”)
Amendment vide Finance Act, 2015
Definition of “Proceeds of Crime” under Section 2(1)(u) of PMLA amended:
"proceeds of crime" means any property derived or obtained, directly or indirectly, by any person as
a result of criminal activity relating to a scheduled offence or the value of any such property or
where such property is taken or held outside the country, then the property equivalent in
value held within the country”
Amendment vide BMA
“Wilful attempt to evade any tax, penalty or interest referred to in Section 51 of BMA” made a
“Scheduled Offence/ Predicate offence”
Enabling the confiscation of foreign assets unaccounted for and prosecution of persons involved
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November 19, 2015
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Foreign Exchange Management Act, 1999 (“FEMA”)
Amendment in Section 13 and insertion of Section 37A
Penalty up to 3 times the amount involved in contravention (Section 13)
Initiation of Prosecution (Section 13)
Seizure of equivalent value of Indian assets on reasons to believe or suspicion (Section 37A)
Content
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November 19, 2015
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Bringing back money to India or only pay tax?
No provision under BMA to bring foreign income/ assets back into India
Amount of 60 percent (tax + penalty) could be paid from Indian funds and then such foreign income/
assets could be kept abroad
However, holding undisclosed asset outside India results in a FEMA violation. Under newly inserted
Section 37A of FEMA, the enforcement officer can go ahead and acquire the assessee’s Indian
assets of an equivalent value.
RBI Press Release 2015-2016/754 dated September 24, 2015: If the declarant wishes to hold the
asset, she/he may apply to the RBI within 180 days from the date of declaration, if such permission
is necessary as on date of application. The RBI will deal with such applications as per extant
regulations. In case such permission is not granted, the asset will have to be disposed of, and
proceeds are required to be brought back to India.
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Issues and Recommendations
Credit of income should be allowed on the basis of source that may be explained by the assessee instead
of restricting it to income “assessed to tax”.
BMA provides that in computing total undisclosed foreign income and asset of a tax payer, no deduction in
respect of any expenditure or allowance or set off of any loss would be allowed whether or not it is
otherwise allowable under provisions of the ITA. This provision may be modified to restore the concept of
"income" as anyway penalty and prosecution have been already provided for separately.
Section 82 of BMA states that no suit shall be brought in any civil court to set aside under this Act. Does this
take away the inherent right granted by the Constitution of India to every person in the country to file a writ?
Though BMA has been introduced with the right objective and intention, it is essential that it is executed and
administrated with subtlety and care. It is essential that appropriate clarifications are issued at the earliest
for a successful implementation of the said Act.
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Financial interest in any entity
Refer Instructions to the form of Return of income:
“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.”
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Wilful Attempt [Section 51(3)]
For the purposes of this section, a wilful attempt to evade any tax, penalty or interest chargeable or
imposable under this Act or the payment thereof shall include a case where any person -
(i) has in his possession or control any books of account or other documents (being books of account or
other documents relevant to any proceeding under this Act) containing a false entry or statement; or
(ii) makes or causes to be made any false entry or statement in such books of account or other documents; or
(iii) wilfully omits or causes to be omitted any relevant entry or statement in such books of account or other
documents; or
(iv) causes any other circumstance to exist which will have the effect of enabling such person to evade
any tax, penalty or interest chargeable or imposable under this Act or the payment thereof.
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ICSI Study Circle Meeting
November 19, 2015
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Disclosures Required
Nature Schedule Reporting requirement
Foreign
source
income
Schedule
FSI
Details of income earned from a source outside India should be disclosed
Foreign
Assets
Schedule
FA
The schedule require for reporting of following:
• Details of Foreign Bank Accounts (including beneficial interest);
• Details of Financial Interest in any entity (including beneficial interest);
• Details of Immovable property (including beneficial interest);
• Details of any other capital assets (including beneficial interest);
• Details of accounts in which the assessee have signing authority (including
beneficial interest) and which has not been included in above categories;
• Details of trust created under the laws of a country in which assesse is trustee,
beneficiary or settlor; and
• Details of any other income derived from any source outside India
Reporting of foreign assets in ROI made mandatory for ROR/ Resident in AY 2012-13
Refer below for details of foreign income and foreign assets to be disclosed:
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November 19, 2015
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Press Release Dated May 31, 2015
As per the press release
An individual who is not an Indian citizen and is in India on a business, employment or student visa
(expatriate),
would not mandatorily be required to report the foreign assets acquired by him during the previous years in
which he was non-resident
if no income is derived from such assets during the relevant previous year
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November 19, 2015
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Annexures
Notifications/ Circulars issued by CBDT and RBI
ICSI Study Circle Meeting
November 19, 2015
Circular Ref File
Explanatory Notes on provisions relating to tax compliance for undisclosed foreign
income and assets as provided in BMA - Circular No 12 of 2015
Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Rules,
2015 published in the Gazette of India
Clarifications on Tax Compliance for Undisclosed Foreign Income and Assets - Circular
No 13 of 2015
Clarifications on tax compliances for undisclosed foreign income and assets - Circular
No 15 of 2015
RBI Press release dated September 24, 2015 - Regularisation of assets held abroad by
Person Resident in India under FEMA, 1999
