The Undisclosed Foreign Income and Assets (Imposition of Tax) Bill, 2015 aims to tax undisclosed foreign income and assets and prosecute related violations. The bill applies to Indian residents and companies holding foreign assets or income not previously disclosed. Undisclosed foreign assets and income will be taxed at 30% plus penalties, with imprisonment of up to 10 years for willful evasion. The bill provides a one-time compliance window to disclose foreign assets and income in tax returns for assessment year 2016-17 at a tax rate of 30% plus penalty, without reopening past assessments. However, disclosures may still lead to proceedings under other laws and do not conflict with double taxation avoidance agreements. The bill grants tax authorities significant

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The Undisclosed Foreign Income and
Assets (Imposition of Tax) Bill, 2015: An
analysis
K. R. Girish
The NDA Government as part of its election manifesto
had declared that they will not shy away from introducing
a legislation to bring black money into the main economic
stream.
As part of this, the Finance Minister in his Budget
Speech of 2015 held out that a comprehensive Bill would
be introduced to deal with black money stashed abroad.
Accordingly, a separate Bill was introduced on March 20,
2015, termed the Undisclosed Foreign Income and Assets
(Imposition of Tax) Bill, providing for legislative sanction to tax undisclosed
income and undisclosed foreign assets and prosecute for various violations,
including rigorous imprisonment for a period from 3 months to 10 years.
Let us analyse the provisions of the Bill and its implications.
(i) First of all, this Bill applies to all residents, i.e., residents and
ordinarily residents R&OR, as per residential status. So, this would
not apply to non-residents and not ordinary residents.
(ii) The Bill also applies to companies and other entities that are
considered as tax residents for Indian tax purposes.
(iii) It applies to undisclosed foreign asset and undisclosed foreign
income:
- undisclosed foreign asset is defined as an asset located outside India
which the assesse owns and does not disclose or fails to disclose
including the source of purchase of the asset;
- undisclosed foreign income shall be that income from any source
outside India that has not been disclosed for taxation.
(iv) The taxation of such foreign assets and income shall be as follows:
- undisclosed income shall be taxed at a flat rate of 30% in addition to
penalties on income considered as concealed income which can be
taxed at 300% of the tax as decided by the Assessing Officer.

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- on undisclosed foreign assets, the fair market value of the asset shall
be taxed @ 30% and penalty shall be similar to that of concealed
income.
- the tax authorities shall follow the normal procedure of assessment
and shall adhere to the principle of natural justice, and opportunity
shall be given to the assesse before initiating proceedings.
(v) The penalty and prosecution proposed in the Bill are quite severe and
the same are as follows:
- Non-disclosure of foreign assets and income - Penalty of 300% tax.
Prosecution to be determined on a case-to-case basis, based on
whether the default is wilful or not.
- If the non-disclosure if found to be wilful then a 300% tax plus a
penalty of Rs 10 lakh.
- If there is a wilful attempt to evade - Prosecution and imprisonment
from 3 months to 10 years depending on the gravity of the offence.
- In respect of failure to give sworn statements, failure to produce books
of accounts and other supporting evidences - Penalty of Rs 50,000 to
Rs 2,00,000.
- In addition to the above penalties and prosecution, in the case of a
company if the offence has been committed due to consent or
connivance or neglect on the part of the manager, secretary or such
other officer then he/ she shall be held guilty and liable for any
recovery which for any reason cannot be recovered from the company.
- Any person making false statement or declaration shall be prosecuted
with imprisonment for a period of 6 months to 7 years depending on
the gravity.
- Any subsequent offence committed shall be severely punished and, in
addition to penalty ranging from Rs 5 lakh to Rs 1 crore, also shall be
prosecuted for imprisonment for a period ranging from 3 years to 10
years.
The Bill provides for a one-time compliance scheme (read not an amnesty
scheme) to disclose truly and correctly in the tax return due for the current
assessment year 2016-17.
This disclosure shall be levied a tax of 30% with equal amount of penalty.
However the saving grace here is that past assessments shall not be
reopened based on this disclosure.

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The other saving feature is that this disclosure under the Income-tax Act
shall not be used as an evidence to initiate proceedings under other laws
especially FEMA.
This disclosure shall not be considered as conflict with the provisions of the
double taxation avoidance agreements (DTAAs) and exchange of information
under the DTAAs shall be separate of this. The Bill, in short, makes it
mandatory for residents to give a true and correct disclosure of the foreign
assets and income. The impact of the Bill can be quite wide and onerous as
it would impact every resident who had been holding a foreign asset. The
holding need not be full ownership; even partial ownership needs to be
disclosed.
The most common of this shall be the holding of overseas bank accounts
and shareholdings. Most technology company employees need to fully aware
of these provisions as they would be holding foreign bank accounts as part
of their overseas secondments and holding stock and shares in the foreign
companies.
Expatriate employees who have been in India for over 729 days in the
preceding 7 years shall also need to comply with these provisions.
Employees and executives who manage PE Funds and who have a carried
interest in an overseas trust/ company shall need to disclose their interest.
Residents who have beneficial interest in an overseas trust/ company also
need to disclose. Companies who in the past have not been making full
disclosure of their overseas foreign assets/ income need to come clean and
make a true and correct disclosure.
Conclusion
The Bill provides for enormous powers for initiating penalty and
prosecution, and all the categories of assesses that are affected by this need
to study the Bill and make a quick diligence to see whether they have been
in compliance with the requirements. The penal consequences as brought
out are quite draconian and one cannot take these lightly.
The need of the Government, after having brought in this Bill, is to come out
with clear guidelines so that nothing is left for the interpretation of the
assessing authority as the Bill provides for enormous powers to the
authority. It is in the interest of everyone that these powers are properly
exercised and not used as a measure to terrorise law-abiding citizens. The
hope is that the Bill when finally enacted shall have provisions for a Rule so
that the authority exercises the same judiciously.
(K. R. Girish is Senior Partner, LeapRidge Advisors LLP)