Indian Revenue sets conditions of Black Money Act amnesty

Monday, 27 July 2015

The Indian federal government has set out exactly how the Black Money Act and its associated disclosure opportunity will work.

The law was put forward as an adjunct to the federal budget in March. Introduced as the Undisclosed Foreign Income and Assets (Imposition of Tax) Bill 2015, it was enacted on 26 May as the Black Money Act, with significant amendments made in the process. In particular, the originally scheduled date of coming into force was moved forward from April 2016 to 1 July 2015, even though many important details – such as the dates of the associated offshore disclosure opportunity, called the Compliance Scheme – had not yet been fixed.

The Indian Revenue Department has now issued a circular setting out the required details. Circular No.13 states that residents with undisclosed foreign assets and income, and non-residents who have invested Indian-sourced income in offshore assets, have until 30 September to declare them under the Compliance Scheme. They will have to pay combined taxes and penalties up to 60 per cent of the total offshore asset values by 31 December.

The circular defines 'undisclosed foreign assets' as 'any asset (including a financial interest in any entity) located outside India, held by the assessee in his name or in respect of which he is a beneficial owner, and he has no explanation about the source of investment in such asset, or the explanation given by him in the opinion of the Assessing Officer is unsatisfactory'. The terms 'financial interest' and 'beneficial owner' are not defined in the Act, leaving some ambiguity concerning the position of trusts.

The term 'assessee' means a person with Indian tax residency under the usual Income Tax Act criteria, but non-residents and former residents can also use the amnesty to declare income chargeable to Indian tax.

For the purposes of the Act, the value of immovable property will be calculated as either the cost of acquisition of the property, or its current fair market price as determined by a 'recognised' independent valuer. Assets not declared by the deadline are liable to tax and penalties of 120 per cent of their value, with the risk of a prison sentence.

Where a person is neither a resident in India nor owns any foreign assets acquired from India-sourced income, the foreign assets need not be declared. However, if a resident held a foreign bank account but closed it before the Black Money Act came into force, the account would still be regarded as an undisclosed foreign asset and must be declared.

The Revenue also recommends declaring all foreign undisclosed assets, even those whose fair market value is currently nil. This, it says, will avoid a future inquiry under the Black Money Act if the undisclosed asset later comes to the notice of the Assessing Office.

An important part of the Compliance Scheme is guaranteed immunity from prosecution for the offence of wilfully attempting to evade tax on the declared assets. However, if the income used to acquire the asset was itself generated by illegal activities, the government reserves the right to prosecute those activities.


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