10 POINT SUMMARY OF THE BLACK MONEY (UNDISCLOSED FOREIGN INCOME AND ASSETS) AND IMPOSITION OF TAX ACT, 2015

1. Tax Practioner Association
THE BLACK MONEY (UNDISCLOSED
FOREIGN INCOME AND
ASSETS) AND IMPOSITION OF TAX
ACT, 2015
CA Deepak Mantri
24 July 2015

2. Contents
 Objectives of the Act
 Analysis of the Act
 Rules of Valuation of Asset
 One time compliance procedure
 FEMA and UFIA
 Case Studies
 Summary of Discussion

4. Genesis and objectives of UFIA
2015
Stashing away
of black money
abroad by
Indian
residents with
intent to evade
taxes / other
malafides
Supreme Court
directives and
Special
Investigation
Team (SIT)
findings
Swiss Bank
disclosures on
bank accounts
owned by
Indians and
media reports
Raised public
conscience
and
parliamentary
debates and
pressures by
opposition
Prime
Minister’s one
of the key
election
manifestoes
before last Lok
Sabha
elections
Co-ordinated
awareness and
drive against
black money by
global and
emerging
economies and
absence of
comprehensive
laws

5. International Cooperation
• EU, SWISS SIGN AGREEMENT TO END BANK SECRECY- The
European Commission and the Swiss government May 27 signed a
landmark new tax transparency agreement, which will effectively
end bank secrecy for Europeans, strengthen the fight against tax
evasion and prevent tax evaders from hiding undeclared income in
Swiss accounts.
• India signs the Multilateral Competent Authority Agreement
(MCAA) pact on Automatic Exchange of Information (AEOI)
– - Previously, 54 countries had joined the MCAA.
– - India is among six countries that joined this taking the number to 60.
– - The target is to reach 94 countries by 2017.

6. Objectives
To deal with problem of black money that is
undisclosed foreign income and assets
To lay down procedures to deal with such
foreign income and assets (punishment and
prevention of such income and asset outside
India)
To impose of tax on any undisclosed foreign
income and assets and matters connected or
incidental

7. Analysis of the UFIA Act

8. Analysis
• Arrangement of UFAI ACT
• UFIA Key Terms
• Definations in the UFIA Act
• Undisclosed foreign income and assets
• Computation of tax on UFIA
• Assessment procedures
• Levy of Interest
• Penalties, offences and prosecution

9. Arrangement of UFAI ACT
Black Money act has 88 sections and 7 chapters :
Preliminary (Sec
1-2 )
Basis of charge
(Sec 3-5)
Tax
Management (
Sec 6 - 40 )
Penalties ( Sec
41-47 )
Offences and
Prosecution (48-
58)
Onetime
disclosure
window ( 59-72 )
General
Provisions ( Sec
73- 88 )

10. Rules, FAQ etc
12 Rules ( Notf
58/2015)
Explanatory
Notes ( Circular
12 dt 2 July 15)
FAQ ( Circular
13 dt 6 July 15
)
Form 1 to Form
7

11. Key Term- Assessee
• Section 2(1) defines “Assessee” as under:
• “assessee” means a person, being a resident
other than not ordinarily resident in India within
the meaning of clause (6) of section 6 of the
Income-tax Act, by whom tax in respect of
undisclosed foreign income and assets, or any
other sum of money, is payable under this Act and
includes every person who is deemed to be an
assessee in default under this Act”
• This Act will not apply to any person who is Not
Ordinary Resident and Non Resident.

12. Assessee -Analysis
Meaning of ‘Person’
• Not defined under the
UFIA Act
• Definition under ITA will be
adopted
• Thus, it will include
– Individuals
– Hindu Undivided
– Family (HUF)
– Company
– Firm
– Association of
Persons (AOP)
– Body of Individuals
(BOI)
– Local authority
– Every other artificial
jurisdictional person
Residence in case of
individuals
• To apply to Resident and
Ordinarily Resident
(ROR)* who is required to
pay tax on undisclosed
foreign income and assets
or any other sum of
Money
• It will not apply to an
Individual who is:
– Resident but Not
Ordinarily Resident
(RNOR)
– Non-resident (NR)
Residence in case of
Companies
• To apply to companies
incorporated in India or
having its place of
effective management
(POEM) in India
– POEM: A place
whether key
management
decisions in
substance are made
– More clarity awaited
on scope of POEM
Residential status should be ‘Resident and ordinarily Resident’ in the year of
detection of undisclosed income and asset

13. Applicability -Chart
Irrespective of his residential status
being NR/NOR in previous AYs
PersonPerson
Person
Resident under
ITA in Previous
Year
PersonNoPersonYes
Person
Non-resident in 9 out of the 10 preceding
previous years
OR
Presence in India during preceding 7
years been in India for 729 days or less
PersonUFIA not
applicable
PersonPerson
Person Person
PersonRNORYesNo
ROR UFIA applicable

14. Undisclosed foreign income and assets
Section 2(11), 2(12) and 4
Undisclosed Foreign Income and Asset
(UFIA) [Section 2(12)]
• Total amount of undisclosed income from
source located outside India [as referred in
Section 4(1)], and
• Value of UFA located outside India
• UFIA shall be
– Income from a source located outside India
which has not been disclosed in the Return
of Income filed under the ITA
– Income from sources, in respect of which
return is not filed under the ITA and
– Value of undisclosed foreign asset (UFA)
located outside India
(fair market value in the previous year in
which AO notices UFA- method of valuation
prescribed by rules)
• Computation of UFIA laid down under section 5
of the Bill
Undisclosed Asset located outside India
(UFA) [Section 2(11)]
• An asset (including financial interest in any
entity) located outside India
• Asset can be held by the assessee in his name
or in respect of which he is a beneficial owner,
and
• Assessee has no explanation about the
source of investment in such asset or the
explanation given by him is the opinion of
the Assessing Officer is unsatisfactory
Test of undisclosed foreign asset is to
explain the source of investment
Asset not taxable as UFA if its source is
explained (even though it is not declared
in the return of income)

15. ---- Contd
• UFA is not defined under the Act. It will include all assets either movable or immovable
(including financial interest in an entity)
• A cue can be taken from the Instructions of Schedule FA to the Income Tax Returns:
“Financial interest would include, but would not be limited to, any of the following:-
(1) if the resident assessee is the owner of record or holder of legal title of any financial account,
irrespective of whether he is the beneficiary or not.
(2) if the owner of record or holder of title is one of the following:-
(i) an agent, nominee, attorney or a person acting in some other capacity on behalf of the
resident assessee with respect to the entity.
(ii) a corporation in which the resident owns, directly or indirectly, any share or voting power.
(iii) a partnership in which the resident assessee owns, directly or indirectly, an interest in
partnership profits or an interest in partnership capital.
(iv) a trust of which the resident has beneficial or ownership interest.
(v) any other entity in which the resident owns, directly or indirectly, any voting power or
equity interest or assets or interest in profits.”

16. Computation of tax on UFIA
• UFIA will be taxed @ 30% - no surcharge and cess
• Tax will be charged on its value in the previous year in which UFIA is noted
by AO and notice is issued
• Value of UFA means fair market value of an asset ‘including financial
interest in any entity) in the previous year in which it comes to AO’s notice–
method of valuation prescribed by Rule 3
• If UFIA is taxed under this new legislation, it will not be taxed under ITA
• Any variation made to the foreign sourced income as per section 29 to 43C
or section 57 to 59 or section 92C of the ITA will not be included in total
undisclosed foreign income

17. Computation of tax on UFIA
Computation of total UFIA Sec 4
Income from source located outside India (foreign income ‘ FI’)
which has not been disclosed in IT Return
xx
FI in respect of which no IT return has been filed xx
FMV of UFA (no explanation or unsatisfactory explanation about the
source of income has been provided – Section 4(3))
xx
Hardship to the assessee as tax and penalties proposed to be calculated at
current value of assets instead of original purchase price

18. Computation of tax on UFIA
• As per Section 5,
– No expenditure, allowance, set off of any loss shall be allowed as deduction from total
UFIA – no mention about liabilities incurred against undisclosed foreign assets
– If any income is assessed prior to AY 2016-17 under ITA or any income is assessed /
assessable under UFIA Act shall be reduced from the value of UFA outside India –
subject to producing evidence that the UFA was acquired from such income
– Proportionate income which was been assessed to tax under ITA or UFIA Act shall be
reduced from FMV of UFA being immovable property
Value of UFA as on
first day of FY (in
which AO notices
such asset)
Assessed /
assessable foreign
income
Total cost of the asset

19. Computation of tax on UFIA
Computation of total UFIA
Income from source located outside India (foreign income ‘ FI’) which has
not been disclosed in IT Return
xx
FI in respect of which no IT return has been filed xx
FMV of UFA (no explanation or unsatisfactory explanation about the
source of income has been provided – Section 4(3))
xx
Less
Income which has been assessed to tax for any assessment year under the
ITA prior to relevant AY in which UFIA applies
(XX)
Income which is assessable or has been assessed to tax for any assessment
year under UFIA
(XX)
In case of immovable properties, the deduction will be:
Value of UFA as on first day of FY in the same proportion as assessed /
assessable foreign income bears total cost
(XX)
Total value of UFIA XX
Tax @ 30% XX
The quantum of penalty may vary between 100% to 300% of the tax amount, depending on whether voluntarily
disclosures are made under one time disclosure window or UFIA is detected by Assessing officer

20. Illustration
• Mr. A acquired foreign asset (immovable property) in the AY 2010-11 for
Rs.60 lacs. Out of the total investment, Rs.40 lacs was assessed to tax in an
earlier year.
• In AY 17-18, AO identified the value of such undisclosed asset as Rs.2 crore
for which no explanation was provided.
Computation of total UFIA Rs. (in crores)
FMV of UFA (no explanation provided
or explanation not satisfactory) 2.00
Less
Income which has been assessed to tax for any (1.33)
assessment year under the ITA prior to relevant AY in which
the Black Money Act [Rs.2crore -(Rs.2crore X 0.40 lacs / 0.60lacs)]
Amount chargeable to tax under Black Money Act 0.67

21. Assessment Procedure
Chapter III (Sec 6- 40) Tax Management
 No requirement to file a separate return under UFIA Act.
 Assessment / reassessment by AO in respect of undisclosed
foreign income or asset on the basis of information received
 Issue of notice for assessment / reassessment (no timeline
provided), opportunity of being heard and furnishing of
evidences / documents will be given – principles of natural
justice to be followed
 Inquiry or investigation by Tax Authorities into matters of the
assesse even though there are no proceedings pending before it

22. Tax Management- Contd
 Time limit for completion of assessment and reassessment shall
be 2 years from the end of the financial year in which notice was
issued
 It is expected that two assessment orders will be passed in
respect of period covered by a single return of income: under
section 143(3) of ITA and 10(3) of UFIA Act
 Remedial measures provided - appeal to CIT(A) / ITAT / High
Court and Supreme Court (for substantial question of law),
rectification of mistakes, revision of orders, recovery of arrears
Under UFIA, the AO will be able to re-open the assessments beyond 16 years.

23. Levy of interest
Section 40
Interest will be levied for
undisclosed foreign income
Non-filing of Income-tax Return
disclosing foreign assets and
income
Non-payment of advance tax in
relation to undisclosed income

24. Nature of default Penalty Prosecution
Concealment of foreign income and asset
Failure to disclose foreign income and asset 300 % (in
addition to tax)
( Sec 41)
3 years – 10
years (sec 51)
Failure to furnish return of income
Failure to disclose foreign asset or income in the return of income
Note: No penalty shall be levied under Clause 42 or 43 if any foreign
asset, being one or more bank accounts, has an aggregate balance
of Rs 500000 or less
Rs 10 lakhs
(Sec 42/43 )
6 months – 7
years (Sec
49-50)
Default in payment of tax arrears
Attempt to evade payment of tax, interest and penalty Equal to the
amount of tax
arrears (Sec 44)
3 months – 3
years
Penalty & Prosecution

25. Penalty Contd…
Nature of default Penalty
Failure to furnish documents before tax authority [Section 45]
If any person fails to:
a) answer any question asked by tax authority
b) sign a statement which he is legally bound to do so
c) attend or to give evidence or produce books of account
Rs.0.5 Lakhs to
Rs.2
Lakhs
Punishment for second and subsequent offences [Section 58]
If a person, who has been convicted for an offence as mentioned above,
is again convicted for an offence under this Bill
Rs. 5 lakhs to Rs.
1
Crore

26. Rules of Valuation of Asset

27. Value of bullion, jewellery etc
Higher of
• Its cost of acquisition
• The price it will fetch if sold in the open
market
-Report from a valuer recognised by the
Government of a country

28. Valuation of shares and securities
Higher of
• Its cost of acquisition
• The average of the lowest and
highest price of such shares on valuation date
(unquoted shares to be valued on the formula )

29. Valuation of Immovable property
Higher of
• Its cost of acquisition
• The price it will fetch if sold in the open
market
-Report from a valuer recognised by the
Government of a country

30. Value of Bank Account
The Sum of
all the deposits
made in the account with the bank
since the date of opening of the account;

32. One time compliance procedure
 Genral
 Who can declare
 Procedure- Rate of Tax etc
 Procedure-How to declare
 Procedure of declaration
 Benefit of Scheme
 Who can not declare

33. General
• Sections 59 to 72 provide for one time voluntary
declaration to avoid any penal action under this legislation
• Positioned as not being an amnesty scheme – there is no
immunity from penalty
• Merely an opportunity for persons to come clean and
become compliant before the stringent provisions of the
new Act come into force
• No additional interest u/s.234A, 234B and 234C of the ITA
will be levied
• No exemption, deduction or set-off of any carried forward
losses
• No reopening of assessment due to disclosure under this
scheme - Declaration will not affect finality of completed
assessment

34. Who can declare
• Failed to furnish a return of income u/s. 139
• Failed to disclose in a ROI furnished by him under the I T Act
before the commencement of this legislation.
• It has escaped assessment by reason of the omission or failure
on the part of the assessee to file the return of income

35. Procedure- Rate of Tax etc
• Declaration to be filed by 30 sep 2015
• Tax at 30% of the value of the undisclosed foreign
asset
• Penalty at 100% of the above tax.
• The payment of the above tax and penalty shall be
made on or before the date notified ie 31 Dec 2015
and proof of payment to be submitted to the
persons notified

36. Procedure-How to declare
• The declaration to be made in Form 6
• The above declaration is to be made to the CIT
Delhi
• This declaration is to be signed by the
authorised person as stated in section 62(2).

37. Procedure of declaration
• If the above tax is not paid before the due date,
the declaration filed will be deemed never to
have been made.
• Any amount of tax and penalty paid by the
person making the declaration shall not be
refundable.
• Amount of undisclosed investment shall not be
included in the computation of total income
• Misrepresentation or suppression of facts by the
declarant would make declaration void.

38. Benefit of Scheme
• No wealth tax shall be payable in respect of the
assets declared under the voluntary declaration
scheme sec69
• No prosecution for declarants under the UFIA Act
• Contents of declaration cannot be used as evidence
for imposing penalties under any other law or for
prosecution under-
– ITA ,
– Wealth tax,
– FEMA,
– Companies Act 2013, or
– Customs Act 1962

39. Who can not declare
• Order of detention under Conservation of Foreign
Exchange and Prevention of Smuggling Activities Act,
1974.
• Prosecution has been launched for any offence
punishable under –
– Chapter IX or XVII of the Indian Penal Code,
– the Narcotic Drugs and Psychotropic Substances Act, 1985,
– the Unlawful Activities (Prevention) Act, 1967 or
– the Prevention of Corruption Act, 1988.
• Person notified u/s. 3 of the Special Court (Trial of
Offences Relating to Transactions in Securities) Act,
1992.

40. When declaration cant be made
One time window not open for the following persons:-
 Any person against whom notice of assessment has been
issued under ITA
 Any person against whom time limit for furnishing of notice
of assessment has not expired due to search, survey under
the ITA
 Any person against whom information has been received in
respect of UFA from competent authority under a formal pact
(cases like account holders of HSBC Geneva which has not
been disclosed, whether or not having any balance)

41. The Process-In a Nutshell
- Declaration in form 6 till 30/09/15-to CIT Delhi or Online
- UFIA for any AY prior to 2016-17 for which the resident
either failed to furnish a return or did not disclose or the
income escaped assessment.
- By October 31, a designated officer will intimate the
declarant if the authority has received information under
the tax treaty,
- Revised declaration in 15 days of receipt of intimation .
If declarant has received the intimation on October 10,
he can file a revised declaration or before October 25.
- In all case the declarant is required to pay the
requisite tax and penalty on the assets eligible for
declaration by December 31, 2015. The assets will be
valued on fair market price.

42. FEMA and UFIA

43. FEMA and UFIA
Foreign assets held in accordance with FEMA - examples
 Any resident individual (under FEMA or ITA or both) who is holding assets
abroad acquired from LRS
 Any Indian resident company holding assets abroad under Overseas Direct
Investments (ODI) Guidelines
 A resident person who continues to hold assets abroad which were acquired
when non-resident as permitted under section 6(4) of FEMA
 Inheritance of foreign asset by Indian resident from non-resident relative and
continues to hold the same as permitted under section 6(4) of FEMA

44. FEMA and UFIA
 Onus is on the Tax Payer to prove that they are holding foreign assets legally
and proper disclosures / filings were made. If so, the Income-tax Commissioner
/ RBI / Enforcement Director under FEMA cannot take any penal action /
prosecution without any proper enquires
 However, Now it is proposes that the Enforcement Director under FEMA can
directly seize equivalent value of Indian assets (without asking any questions)
and merely on the reason to believe or suspicion – similar amendments are
also proposed under Prevention of Money-laundering Act, 2002 (PMLA) vide
Finance Bill 2015
Black Money is different from criminal money – Harsh implications and arbitrary penalties
under UFIA read with proposed PMLA amendment not justified

45. CASE STUDIES

46. Case Study 1
• A person has a foreign bank account in which
following undisclosed income has been deposited
over several years.
– 20 sep 1975 $ 100000
– 1 jan 1980 $ 50000
?1.He has spent the money in the account over
these years and now it has a balance of only $500.
Does he need to pay tax on this $500 under the
declaration.
?2. What would be position if he withdraw all
money and close the account in 2014.

47. Case Study- 2
• A person inherited a house property in 2003-
04 from his father who is no more. Such
property was acquired from unexplained
sources of investment. The property was sold
by the person in 2011-12.
– Does he need to declare such property ?
– what will be the fair market value of such property
for the purpose of declaration?

48. Case Study - 3
Mr George is a non-resident. He was a resident
of India earlier and had acquired foreign assets
out of income chargeable to tax in India which
was not declared in the ROI in respect of that
income. Can that person file a declaration
under Chapter VI of the Act?
Ans - Yes

49. Case Study- 4
Mr Patel is a resident now. He was a non-
resident earlier when he had acquired foreign
assets (which he continues to hold now) out of
income which was not chargeable to tax in India.
Q-Does Mr Patel need to file a declaration in
respect of those assets under Chapter VI of
the Act?
A- No

50. Case Study- 5
Ms Dhawal resident earned income outside India from his house property in
US .It was deposited in his foreign bank account. The income was charged to
tax in the foreign country when it was earned but the same was not declared
in the return of income in India and consequently not taxed in India.
Q- Does he need to disclose such income? Will he get credit of foreign tax pa
id? 26

51. SUMMARY

52. Summary of Key Highlights of the
UFIA Act
1.
2.
3.
Act is effective from 1 July 2016 onwards (Assessment Year 2016-17) and extends
to whole of India
Applicable to all persons resident in India. In case of Individuals, it applies to ordinary
resident under ITA
Flat 30% tax rate (without surcharge and cess) on the value of total undisclosed
foreign income and asset, Asset to be valued on Current FMV
No exemption, deduction , set-off and carry forward of losses under ITA, no set off foreign
tax credit will be allowed on UFIA
Additional 300% penalty for non-disclosure of foreign income or an asset.
4.
5.

53. 6.
7.
8.
9.
10.
Rs.10 Lakhs penalty for non-filing of return / not furnishing complete details
of foreign assets.
Prosecution for various violations (including abetment) including rigorous
imprisonment from 3 to 10 years.
Tax and penalty proposed to be calculated at current value of assets as per rules
instead of purchase value , Bank asset value is total of deposit
original purchase price
One time compliance opportunity to be availed before 30 sep 2015, by paying 30% tax
and equal penalty, no interest and prosecution
Only bank account up to total balance of Rs 5 lac exempt
Summary of Key Highlights of the
UFIA Bill

54. Thank You
By-
CA Deepak Mantri
dmantri@hotmail.com
+919425064725