IT’s disclosure time

Own a sea front cottage on the scenic beaches of Seychelles? Or a villa in Eaton Square? If homes don’t catch your fancy, are you the type to dabble in other kinds of overseas financial investments? Whatever be your holdings abroad, even if it is a bank account, it’s time you pay more attention to your foreign assets and income.

The taxman is all set to probe such holdings with eagle eyes, thanks to two recent developments — the passing of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act and the notification of the new Income Tax Return (ITR) forms for the Assessment Year 2015-16.

Disclosure of foreign assets It’s a rule under the Indian Income Tax Act 1961, that if any assessee during a year is a ‘resident’ in India, his global income (that is, income from sources both within India and abroad) during that year will be subject to tax in India.

‘Resident’ includes not only Indian citizens staying in India but also foreign nationals who stay and/or work in India, Indian citizens who have come back from a stint abroad and Indians who have taken foreign citizenship, but are living in India now — if each of them fulfils the conditions required to qualify as ‘resident’ according to the Income Tax Act. Over the years, lenient reporting/disclosure requirements for foreign assets and income led to a lot of unaccounted money of residents being stashed away in assets abroad.

In the redesigned ITR forms for Assessment Year 2012-13, the government tried to get a toehold on assets and income earned abroad by introducing certain disclosure requirements. This included details of foreign bank accounts, financial interest in any entity abroad and details regarding immovable property. Besides, the Income Tax Act (Sec 139) also states that residents having assets abroad/financial interest in any entity abroad/signing authority in any account abroad have to file tax returns even if they do not have taxable income and are not required to file the return otherwise.

The larger idea behind the higher disclosure requirements was that it could help keep tabs on black money. For instance, a further probe into any of these disclosures could reveal an unexplainable source of income for the assessee or bring out any other undisclosed assets. To tighten the noose much more, the government has now come out with a comprehensive legislation to deal with unaccounted money. Passed by both Houses of Parliament recently, it is applicable for the Assessment Year 2016-17 onwards for residents in India.

How it affects you If you have been lax in reporting a foreign asset or financial interest in an entity abroad or foreign income in the returns, or not filed returns at all when you were supposed to, or refrained from disclosing any detail, you now need to be on the alert.

More so, if you are not able to explain your source of income for these investments. If found guilty under the Black Money Act, you will not only have to pay tax at 30 per cent on undisclosed foreign assets or income, but also a penalty equal to three times the tax payable. Besides, the failure to furnish returns or inaccurate details in returns will attract a penalty of ₹10 lakh (provided value of asset is above ₹5 lakh).

Prosecution with rigorous imprisonment ranging from three months to 10 years and fine have also been provided for wilful attempt to evade tax or failure to file returns or filling inaccurate details in returns. The government is expected to shortly open up a window for one-time compliance for all previous assessment years. Here, the tax rate would be 30 per cent and penalty restricted to 100 per cent of the tax paid.

In line with the thought process in the Black Money Act, the new ITR forms for this year (Assessment Year 2015-16) released in April 2015 also require more rigorous disclosures than the earlier ones since 2012-13, with regard to foreign income and assets. But one needs to wait and watch till the final version of the forms are notified, as to whether all the additional disclosures are actually needed. As of now, the reporting requirements for foreign nationals who are residents alone have been given a breather. If the assets abroad were acquired when these foreign nationals were non-residents and they are not generating any income in the year for which the return is being filed, then they need not disclose such assets.

Come clean in ITR After considering the changing legal landscape, if you have missed disclosing anything, it’s best to come clean when you file your tax returns for this year in the next one-two months. “If it is a legitimate bank account or a legitimate buy and the person has not declared it in the past for whatever reasons, it is recommended that he should declare in the current year and also revise the return of the previous years, wherever possible,” says Rakesh Nangia, Managing Partner, Nangia &Co. Kuldip Kumar, Leader, Personal Tax, PwC echoes the sentiment.

“You can disclose all foreign assets and income on your own when you file returns this year. While the Income Tax law also provides for prosecution under Section 277 for such offences, you can still go to the Settlement Commission and negotiate. There is no such commission in the Black Money law.” If you have unaccounted money kept abroad though, you may use the one-time compliance opportunity under the Black Money law.

COMMENT NOW