India introduces legislation against undisclosed foreign income and assets

On 20 March, the Finance Minister of India tabled The Undisclosed Foreign Income and Assets (Imposition of Tax) Bill, 2015.

This is in line with the government’s intention to introduce more comprehensive legislation against black (tax evaded) money, especially those stashed away abroad.

The new law provides separate taxation for undisclosed foreign income and assets. Such incomes will no longer fall under the Income Tax Act. Instead, it will be taxed under the stringent provisions of the proposed new legislation.

The Government has expressed confidence that the new law will act as a strong deterrent in curbing the menace of tax evasion.

As explained by the Tax Authority, The salient features of this new proposed law are:

  • It will apply to all persons resident in India in respect of undisclosed foreign income and assets including financial interest in any foreign entity. The provisions of this law will also apply to beneficial owners or beneficiaries of such illegal foreign assets.
  • Undisclosed foreign income or assets shall be taxed at the flat rate of 30%. No exemption or deduction or set-off of any carried forward losses which may be admissible under the existing tax law.
  • Violation of the provisions of the proposed new legislation will entail stringent penalties equal to 90% of the undisclosed income/ asset.
  • Failure to furnish return in respect of foreign income or assets or failure to disclose or furnishing of inaccurate particulars shall attract a penalty of Rs.1 Million. It will be also punishable with rigorous imprisonment for a term of six months to seven years.
  • Enhanced prosecutions and punishment are prescribed for various types of violations. The punishment for willful attempt to evade tax in relation to a foreign income or an asset located outside India will be rigorous imprisonment from three years to ten years besides fine.
  • Abetment or inducement of another person to make a false return or a false account or statement or declaration under the Act will be punishable with rigorous imprisonment from six months to seven years. This provision will also apply to banks and financial institutions aiding in concealment of foreign income or assets of resident Indians or falsification of documents.
  • One time compliance opportunity will be provided to such persons who may file a declaration before the specified tax authority within a specified period. It will be followed by payment of tax at the rate of 30% and an equal amount by way of penalty as an opportunity for them to come clean and become compliant before the stringent provisions of the new Act come into force.
  • Provision is also made to include offence of tax evasion under the proposed legislation as a scheduled offence under Prevention of Money Laundering Act.
 
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