Your Global Assets Could Land You in Jail: Prevent it Now

By | July 10, 2015

Tax Evasion

A Princess in the middle east was gifted a completely gold toilet on her wedding.

The wealthy love spending and we love to hear about the diamond studded BMWs and private jets that they gift each other. So many of us wistfully wish we could visit their sprawling mansions with indoor pools in exotic locations. Sigh!

It is not uncommon for the rich to own assets abroad, in addition to holding assets within the country.

But if you have neglected to declare these assets to the legal authorities, there are chances that it may be called ‘black money’ in the legal parlance. And then you may be in big trouble, keeping in mind the latest developments in our country.

Unlike the earlier Governments, the Modi Government has taken the issue of ‘black money’ stashed abroad pretty seriously. The Parliament passed a Bill in this regard in May 2015 with the Prime Minister warning those having illegal assets abroad. Thereafter, the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (known as the Black Money Act) was passed in both the houses of the Parliament and has come into force from July 1, 2015.

What are the recent developments?

The Government has introduced a ‘compliance window’, which is a period during which an individual can voluntarily declare the assets they hold outside India. This is a onetime window offered by the Government. The Finance Minister has made it clear that this scheme is not an amnesty scheme and does not provide for a waiver of tax. Instead, it is an opportunity for people to come clean with details of their investments and assets abroad.

Also, the compliance window does not provide a confidentiality clause for the declarations made. The scheme is not applicable to professionals and Non Resident Indians working abroad.

The Act also does not cover those having a balance of up to Rs. 5 lakhs in their bank accounts abroad. Only resident tax payers who keep unauthorised income abroad will be covered under the Act. People who have been issued notices or cases in which information has been received from a foreign country before June 30, 2015 have been exempt from this.

A three month period is given for the compliance window, beginning from July 1, 2015, while the last date for paying the tax and penalty on the declared assets is December 31, 2015. The assets are to be valued at a fair market value and should be declared in rupees.

The Reserve Bank of India’s reference rate on the date of valuation should be used to convert the value to rupee terms. Details with regard to location of the asset, the fair market value and the date of acquisition need to be declared.

What does ‘Assets’ include?

‘Assets’ here include immovable property, bullion, shares, art work and jewellery. Specific guidelines have been given for each asset class. For example, the value of a bank account will include all the deposits made in the account since the time it was opened abroad. Details of the location of the bank accounts, date of opening and sum of all credits should be disclosed in the prescribed format.

The fair market value for these will be the cost of acquisition or the asset’s price in the open market on the valuation date, whichever is higher. For shares and securities, fair market value will be the cost of acquisition or the average of the lowest and highest price on the valuation date, whichever is higher. With regard to jewellery, the individual needs to disclose details of its purity, quantity and value of the gold and stones used.

Taxation Aspects

Under the compliance window, the individual will need to pay a tax of 30% and a penalty of 30% on the declared assets. If one does not use this compliance window, the penalty is much higher. Anyone who does not hold a PAN at the time of this exercise will first need to apply for one before making the declaration.

It has been opined by experts that the rules are simple for making the declaration. The rules have seven forms including those to be filled for declaring the assets. Format for notices and appeals to Commissioner (Appeals) and Appellate Tribunal have also been provided in the recent rules. Apart from manual filing, e-filing facility is also available, wherein declaration of overseas assets can be done online. In this case, the individual or entity should have a valid digital signature and should use the same in the declaration.

What happens if you don’t make use of the compliance window?

You could face severe penalties which can go up to 90% penalty, in addition to paying 30% tax, and imprisonment of anywhere between 3 years to 10 years. That is a total of 120% payment, compared to 60% if the declaration and payment is made during the compliance window. Also, by 2017, a real time automatic disclosure of information will take place.

Although this comes at a price, you can keep visiting that beach house in Miami with no guilt whatsoever. Do click some pictures though, we’d love to see it.

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