Beware! The Govt Has Loosened the Leash on its Tax Hounds

Hiding foreign incomes is no longer easy. So, come clean before it is too late.

Tax Avoidance Penalties

• Tax evaders would have to pay 120% in taxes and up to 10 years of rigorous imprisonment on “unaccounted assets”
• Onus is on resident Indians, IT department can get information of unaccounted wealth and assets even from tax havens
• Difficult to hide foreign assets as India has entered into a multilateral agreement to track down wealth and income on which taxes are not being paid
• All individuals and entities have a three-month window to declare foreign assets, investments and incomes from July 1 to September 30

There is nothing illegal about owning assets overseas, having a foreign bank account or earning income overseas. What is illegal is concealing information related to those assets, investments and income from Income Tax authorities if you are a taxpayer in India. More so now that the new black money law has come into force. The option is to come clean now or face the consequences, including 120% in taxes and up to 10 years of rigorous imprisonment when the IT Department finds out about what it refers to as “unaccounted assets.”

For that matter, in addition to enacting the black money law, India has made it increasingly difficult for its residents to hide foreign assets, investment and income as the country has entered into a bilateral agreement with the US and a multilateral agreement to track down wealth and income on which taxes are not being paid.

For the moment, all individuals and entities have a three-month window to declare foreign assets, investments and incomes, pay 30% tax on the fair value of the assets and another 30% as penalty and avoid harassment from tax officials in the future. The window opened on July 1 and closes on September 30.

Professionals, Relax

The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, with its extremely punitive measures, has people worried, including those who should not be such as Indian professionals who go on short- to medium-term assignments to overseas destinations. But these professionals should be the ones with the least fear of the new law, if they have paid all their due taxes in the host country before returning to India.

On return to India, they need to just declare what assets and investments they continue to hold in the foreign nation. If they are earning any income – in form of rental, dividend or interest – from such assets, they need to add that income to what they are earning in India and offer it for taxation. Failure to do so can get the person into trouble. This is because India has been taxing global income of resident individuals and entities in India since 2012.

Likewise, students who went overseas to study and who may have worked alongside and saved some money in bank accounts too have nothing to worry, provided they declare on return any operational accounts and offer interest earned on the deposit for taxation.

Onus on Resident Indians

It is resident Indians who transfer their non-tax paid income through unofficial channels to overseas destination to acquire assets, invest in securities or simply to hold it in banks who need to fear the new black money law. Additionally, they can face action under the Prevention of Money Laundering Act.

It is expected some of these individuals and entities will take advantage of the three-month window offered by the government to declare unaccounted assets and seek settlement. If the original owner of such asset or investment has died, his legal heir can make the declaration of unaccounted assets and investments under the immunity window scheme.

However, there is a catch. If the tax authorities already possess information on such investments and assets, the individual or entity may be denied the benefit of availing immunity under the three-month window. The condition here is that the income must have been generated from a legal activity but no tax was paid on it. If the asset is the result of an illegal activity, such as proceeds of corruption or smuggling, then immunity under the black money law will not be allowed.

The long and short of it is that hiding incomes is no longer easy. The IT Department can get information of unaccounted wealth and assets even from tax havens. And they obtain it from Swiss authorities under an agreement reached last October. So, come clean before it is too late.

(The writer is a Delhi-based senior journalist)