Professionals who worked abroad, earned and acquired assets there are a worried lot. So are the ones who are still posted overseas and are planning to return. The rules and FAQs for the new Black Money Act, notified by the income tax department last week, have raised several questions about the applicability of the law on their income and assets abroad.
Having been deluged with queries from professionals regarding the implication of the new law for them, tax consultants said that lack of clarity and paucity of time are the two main challenges facing the implementation of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.
The Act, enacted after high-pitched politicking, deals with the menace of black money stashed abroad and provides stringent punishment of up to 10 years rigorous imprisonment and penalty of 90 per cent along with 30 per cent tax for wilful attempt to evade tax on assets held abroad by a resident.
Given the tough provisions of the Act, the government has also provided for a three-month compliance window up to September 30 to declare such assets and income held abroad under Chapter VI and pay tax and penalty of 30 per cent each by December 31 to escape prosecution.
While the Central Board of Direct Taxes (CBDT) issued frequently asked questions (FAQs) laying down the conditions and situations that may arise during the course of implementation of the Act and availing of the compliance window, several concerns are stemming due to ambiguity in the FAQs.
The Act puts reporting obligations on tax payers who are earning abroad and acquiring assets through legitimate funds. Tax experts said they have been receiving several queries regarding investments made in pension plans which will generate income later.
“People are concerned about the implication. This may impact senior executives in sectors such as pharma, financial services and IT who work overseas,” Vishal Dhawan, founder, Plan Ahead Wealth Advisor, said, cautioning that even a small amount held in a foreign account abroad has to be reported to escape penalty.
Failure to furnish return in respect of foreign income or assets will attract a steep penalty of Rs10 lakh, as per the Act.
People can declare undisclosed assets in foreign countries in Form 6 by calculating their overseas income and assets such as immovable property, jewellery, bullion, shares, archaeological collections and art work on their fair market value. The rules also include the list of people who can avail of the compliance opportunity and those who can’t.
Hailing the notification, Kuldip Kumar, partner and leader personal tax, PwC, said that there are areas where more clarity was needed.
Further clarity will certainly help the taxpayers to understand their obligation under this Act to ensure better compliance … For example, FAQ no. 21, in case of inheritance of property from the father and which has been sold by the son in an earlier year, son can make the declaration in respect of such property as legal representative where source of investment in the property by the father was unexplained. What happens if son is not aware of the source? Can he be liable under this Act, in case he fails to make such disclosures? Similarly, from FAQ no. 32 it appears as if the non-residents are also being covered by the Act, while Section 3 of the Act provides the applicability of this act to ordinarily residents only,” Kumar said.
Along with these, the treatment of exempt income is also not clear in the FAQs, Divya Baweja, partner, Deloitte Haskins and Sells, said. “For example, if one has income overseas which is exempt from tax and is used in acquisition of an asset, will such asset need to be disclosed? The FAQs are silent on the treatment,” Baweja said. Treatment of contributions to social security, 401K and pension fund is also not clear, he said adding that a view may be adopted that one has an enforceable vested right, “it is an asset and needs to be disclosed. Some clarity may be required on this.”
There are calls of bringing clarity on applicability of professionals working abroad. According to Daksha Baxi, executive director, Khaitan and Co, IT professionals will only be covered under the new Black Money Act to the extent that they have not declared the income earned abroad in the relevant assessment year and in their revised returns for those years. “Those professionals who have complied with IT Act, will not be caught by this act,” she said.
Compliance window — too small?
Rules say that valuation of assets in foreign countries will have to be done by a recognised valuer. However, the three-month window provided by the Centre is too short to find a government-recognised valuer and get the valuation done, Baxi said. “The period of three months to collate all relevant details for assets acquired prior to the commencement of this act may be a challenge,” Krishan Malhotra, head of tax, Shardul Amarchand and Mangaldas, said.
Now that the Act is a reality, people should carefully assess whether they are actually eligible to avail of the opportunity, and be truthful in their declaration, advise tax experts.
“People will have to keep in mind the date of their migration to a foreign country. For example, those who leave say in June and stay overseas will not be covered under the Act while those who leave say in December will be covered as per the definition of a resident,” Jagvinder Brar, partner, KPMG, said. He cautioned that while professionals will have to maintain better records, those who have businesses abroad will have to ensure that they have cleaner balance sheets. “This will help them in better assessment of their liability,” he added.