Income Tax Taxation

Undisclosed Foreign Income and Assets

In the year 2015, the Government of India has passed act no. 22 of 2015 to deal with the problem of the Black Money that is undisclosed foreign income and assets, procedure for dealing with such income and assets and to provide for imposition of tax audit on any undisclosed foreign income and asset held outside India and for matters connected therewith or incidental thereto under the title of Black Money (undisclosed foreign income and assets) and imposition of tax act, 2015 dated 26^th May, 2015 to be effective from 1^st day of April, 2016.

On today write up, let’s discuss on undisclosed foreign income and assets.

What is Foreign Income and Assets?

As per Act, for undisclosed foreign income and assets defines as it is the total amount of undisclosed income^[1] of an assessee from a source located outside India and the value of an undisclosed asset located outside India, referred to section 4 and computed in the manner laid down in Section 5 of Act, 2015.

On a plain reading of Section 4 of the governing act, it is very clear that act on the subject to other provision of this act, prescribed following income as undisclosed foreign income and assets of assessing:-

1. Income from a source located outside India which has not been disclosed in return of income furnished to the department;
2. Income from a source located outside India which return is required to be furnished but no return of income has been furnished within time and
3. Value of undisclosed assets located outside India

Section 5 provides a valuation of undisclosed assets located outside India. Further, it suggests a proper way out to compute the actual income to be added on return due to undisclosed foreign income and assets.  One thumb rule is no deduction in respect of any expenditure or allowance or sets off of any loss shall be allowed to assess irrespective of any fact.

Our Recommendation: What is Foreign Tax Credit and How to Claim it?.

For example

A house property located outside India was acquired by an assessee in the previous year 2014-15 for Rs. 70 lakhs. Out of the investment of Rs. 70 lakhs, Rs. 30 lakhs was assessed to tax in the total income of the previous year 2014-15 and earlier years. Such undisclosed assets come to the notice of Assessing Officer in the year 2017-18. If the value of the asset in the year 2017-18 is Rs. 1 crore the amount chargeable to tax be Rs. 57 lakhs.

Working:    

Amount Chargeable to tax= Current Value-Current Value * Amount of Disclosed/Cost of Acquisition= 100-100*30/70=100-43=57 lakhs

Consequences:

Assessing officer may direct the assessee to pay by way of penalty in addition to tax if any sum equal to 3 times the tax computed under the provision of this act.

Person being resident other than not ordinarily resident in India required to disclose any asset (including financial interest in any entity) located outside India as a beneficial owner or otherwise; or was beneficiary of any any asset (including financial interest in any entity) located outside India; or had any income from source located outside India and fails to furnish such return, Assessing officer may direct that person shall pay by way of penalty a sum of Rs. 10 lakhs. It is to note here that personal assets being one or more bank account having an aggregate balance which does not exceed value equivalent to Rs. 5 lakhs at any time during the previous year is not taken into account to consider the information to be furnished in relation to foreign income and asset.

As a consequence of noncompliance is being huge financial impact and prestige in society, it is advisable to have good professional having sufficient knowledge and capabilities to guide on the correct manner to avoid any unwanted circumstance on the regular life of a person.

See, Also: Foreign Currency Account Outside India.