The Centre has notified rules for calculating overseas income and assets under the new black money law, wherein tax evaders will have to shell out duty and penalty on the fair market value of undisclosed overseas assets such as immovable property, jewellery, bullion, shares, archaeological collections and art work.
While a small window till December 31 has been offered for people to declare undisclosed income and pay tax and penalty, those excluded from the list include people who have already been issued notices or cases in which information has been received from a foreign country up to June 30, 2015, according to the rules issued for the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015. Laying down the procedures for the declaration of undisclosed assets in foreign countries, the department has also issued various forms to declare and acknowledge such declarations along with a statement of assets located abroad.
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Under the new Act, tax will also be chargeable for assessment year 2016-17 for which the relevant previous year is 2015-16. Accordingly, the Act and the compliance provisions for the same would be effective July 1. However, the compliance window may not be as attractive for tax evaders because it does not offer any confidentiality clause, Amit Maheshwari, managing partner, Ashok Maheshwary and Associates, said. He added that the high compliance cost will deter big tax evaders to come forward and declare the undisclosed assets.
However, tax experts agree that the rules are simple and provide a detailed process for making the declaration.
“True to its commitment, the government has kept the process simple. For the purpose of one-time declaration, the guidelines also prescribe valuation norms for various category of assets, generally being the valuation as on July 1, 2015, or cost of acquisition, whichever is higher,” said Divya Baweja, partner, Deloitte Haskins and Sells.
The Act was passed by Parliament in May when finance minister Arun Jaitley warned those having such assets to utilise the compliance window because, “the world is no longer willing to tolerate tax havens which thrive in secrecy”. The Act will not cover those having amounts equivalent to Rs 5 lakh in bank accounts abroad, which may belong to students or those working there.
Under the Act, defaulters will have to pay 30 per cent tax and 30 per cent penalty under the compliance window. However, those who do not declare their wealth in the window period will be liable to pay 30 per cent tax and 90 per cent penalty and could also face imprisonment for a minimum of three years which could go up to 10 years.
“Where a valid declaration as detailed above has been made, the amount of undisclosed investment in the asset declared shall not be included in the total income of the declarant under the Income Tax Act for any assessment year; the contents of the declaration shall not be admissible in evidence against the declarant in any penalty or prosecution proceedings under the I-T Act, Wealth Tax Act, the Foreign Exchange Management Act, the Companies Act or the Customs Act,” the rules state. However, this is not to say that tax evaders will not be prosecuted under other Acts, such as PMLA, if found guilty. The fair market value of an immovable property will be higher from the acquisition cost or the price that the property shall fetch in open market on the date of valuation. Bullion, jewellery, precious stone, drawings, paintings, archaeological collections, and sculptures or work of art will also be similarly valued.
Amarpal Chadha, tax partner, EY India, said that with the law enforced now, it is important to collate information “already disclosed under the normal I-T returns and reconcile the same with the disclosures being made now under the Black Money Act.”