On 13 May 2015, the India Parliament ratified the Undisclosed
Foreign Income and Assets (Imposition of Tax) Bill, 2015. President
Pranab Mukherjee signified his assent on 26 May 2015. In prime, the
Black Money (Undisclosed Foreign Income and Assets) and Imposition
of Tax Act, 2015 (the "Foreign Assets Act") promulgates a
comprehensive framework for dealing with undisclosed foreign income
and assets, together with imposition of tax on such undisclosed
foreign assets and penalty for tax evasion and non-disclosure.
Accordingly, it is worthwhile to consider the following key
aspects of the new legislation.
Scope: The Foreign Assets Act applies
to all persons who are resident and ordinarily
resident of India under the Income Tax Act. An
undisclosed asset located outside India
is defined to mean an asset (including any 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 the assessee
has no explanation about the source of investment in such assets or
the explanation given by the assessee is unsatisfactory in the
opinion of the assessing officer. Further,
"undisclosed foreign income and
asset" is defined as the total amount of
undisclosed income of an assessee from a source located outside
India and the value of an undisclosed asset located outside
Administration: The Central Board of
Direct Taxes and the existing hierarchy of tax authorities under
the provisions of the Income Tax Act, including the appeals
machinery prescribed thereunder, have been tasked with
implementation of the new legislation.
Taxation Rate: Any undisclosed foreign
income or asset shall be taxed at the rate of 30 percent, and the
provisions relating to exemption, deduction or minimization of tax
liability by way of set off of losses under the Income Tax Act will
not be available.
Penalties: Non-disclosure of any
income or asset located outside India will attract, in addition to
the tax, a penalty equal to three-times the tax payable on the
undisclosed foreign income and assets. Not furnishing income tax
returns for foreign income and assets or providing misleading
information for such foreign income and assets attracts a penalty
of INR 10,00,000 under the new legislation. Criminal punishment for
such tax evasion practices could attract rigorous imprisonment from
three to 10 years and a discretionary fine. However, it is
important to note that the Foreign Assets Act provides that persons
who have foreign accounts with minor balances, which may
not have been reported out of oversight or ignorance, are protected
from penalty and prosecution.
One-Time Amnesty Scheme: The Foreign
Assets Act provides a one-time amnesty scheme for all persons who
have not previously disclosed their foreign assets for the purpose
of taxation. The Central Government will provide notification on
the scope and administration of the amnesty scheme after the
legislation comes into force. The amnesty scheme requires payment
of tax at the rate of 30 percent, together with a penalty amount
equalling the total tax amount levied on the undisclosed foreign
assets. Further, such declaration made by the taxpayer in this
regard will not be admissible as evidence for prosecution under the
Foreign Exchange Management Act, 1999; Income Tax Act; Wealth-Tax
Act, 1957; Companies Act, 2013; or Customs Act, 1962. However, it
is likely that the amnesty scheme will not be applicable to any
person who has been subjected to a search or when a
notice of reopening is pending or information has been
received by the tax authorities under a tax treaty or tax
information exchange agreement in respect of the undisclosed asset,
etc. Therefore, the information in relation to HSBC Bank Geneva
account holders is likely to fall under this category.
Money Laundering Offences: The Foreign
Assets Act contains an amendment to the Prevention of Money
Laundering Act, 2002 ("Money Laundering Act"), thereby
making a violation under the Foreign Assets Act an offence under
the Money Laundering Act, as well. This may be particularly
concerning for banks and other financial intermediaries since each
such institution can be prosecuted under these provisions in India
for wilfully abetting these practices.
Originally published June 18, 2015
If you have any questions about the topics discussed in
this Alert, please contact Saionton Basu in Duane
Morris' London office, any of the attorneys in our India
Practice Group or the attorney in the firm with whom you are
regularly in contact.
Disclaimer:This Alert has been
prepared and published for informational purposes only and is not
offered, nor should be construed, as legal advice. For more
information, please see the firm's
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
Cummins Inc. is a foreign company, rendering services in respect of desktop/laptop software license and internet mail facilities to its Indian associated enterprises, i.e. CIL and CSSL which were paying IT charges provided by the taxpayer.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).