Penalty For Non Disclosure of Foreign Assets: lack money, undisclosed income, or unaccounted cash—these have been major headaches for the government and tax authorities for ages, I tell ya! Like, we’re talking serious stuff here.
Way back, like over ten years ago, those revenue folks got their hands on intel from all sorts of places, y’know, spilling the beans on black money hidden in countless foreign accounts.
And boy, did it reveal a massive flow of unauthorized dough and folks dodging taxes left and right.
Tax evasion, my friend, is a real deal threat to any country’s economy.
It messes with revenue, jacks up inflation, and opens the floodgates for corruption.
Even Nirmala Sitharaman, the former finance minister, knew during his budget speech in 2022 that tackling the issues of poverty and inequity required a strong and effective crackdown on the generation and concealment of black money.
He boldly exclaimed, We can’t expect to wave goodbye to poverty and inequality unless we hit hard on the creation and hiding of illicit funds.
To tackle this whole issue head-on, the government was like, Hey, we need some rules in place to keep a tight leash on those sneaky black money transactions and catch those funds flowing out of India without permission, as well as those secret squirrel bank accounts abroad.
So they went ahead and passed the Undisclosed Foreign Income and Assets (Imposition of Tax) Bill, 2015, in the Parliament.
That’s how we got the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (you know, the Black Money Law).
What Is Law For Penalty For Non Disclosure of Foreign Assets
At the same time, the lawmakers also made it mandatory for every taxpayer residing in or ordinarily residing in India to disclose their assets (including financial interests) and income from any source outside the country.
When it comes to taxes, the guidelines state that taxpayers must provide sufficient details in schedule FA of their annual income tax return.
This includes reporting foreign bank accounts, ownership of shares in foreign companies, investments in foreign mutual funds, properties abroad, and any other income generated outside India.
It’s worth noting that the disclosure requirements for foreign assets and income are extensive enough to cover even transactions like allocating shares of a foreign company to employees of an Indian firm through an Employee Stock Option Plan (ESOPs) or similar schemes.
This holds true even if the Indian entity withholds taxes on the value of such ESOPs.
So, it’s important to ensure that all relevant information regarding foreign assets and income is properly disclosed in your annual tax return, without overlooking any beneficial interests you may have.
When it comes to your Penalty For Non Disclosure of Foreign Assets taxes, here’s the deal: it’s not just about the income you earned in a year.
You see, even if you didn’t make any money on certain assets you held, you still gotta include ’em in your tax disclosures.
Filing your Income Tax Return (ITR) means you gotta spill the beans on all your income and assets, including any sneaky offshore stuff.
Don’t forget, it’s crucial to make all the necessary disclosures.
Penalty and criminal liability
Lately, tax regulators have been on their toes, actively gathering intel on undisclosed offshore investments and assets.
They’ve been using the Exchange of Information provisions of Tax Treaties, which basically means information is flowing automatically between jurisdictions.
This little trick has been a game-changer for the government in cracking down on black money or those sneaky unaccounted funds taxpayers try to hide.
They’re able to dig deep into the cases and take action, not just under the Income Tax Law, but also under the Black Money Law.
It’s like they’re saying, We see you, and we’re coming for you!
The Black Money Law is no joke. It sets up a whole different tax system, stricter and more unforgiving, specifically for undisclosed foreign income and assets.
If you’ve got any of those hidden treasures stashed away, the law not only slaps you with taxes but also comes down hard on you if you fail to spill the beans or provide incorrect details about your foreign assets or income in your tax return.
Now, pay attention, because this is where it gets interesting.
If you don’t fully come clean and give the whole truth about your foreign income and assets, you’ll be hit with a hefty penalty of ₹10 lakh, courtesy of the Black Money Law.
But that’s not all! Brace yourself for more trouble. Your undisclosed foreign income and assets might be labeled as such, subjecting you to a whopping 30% tax liability.
Oh, and don’t forget the cherry on top: a penalty thrice the amount of tax liability on those sneaky, undisclosed foreign income and assets.
And that’s not even the worst part.
Trying to dodge taxes in connection to that income can land you in hot water, my friend.
You might just find yourself facing criminal charges.
Penalty For Non Disclosure of Foreign Assets
If you don’t spill the beans about your overseas assets or provide bogus information, you’re gonna be in deep trouble.
Let me break it down for you, here are the consequences of keeping mum or fibbing about your foreign assets.
- You’ll be slapped with a hefty fine of INR 10 lakhs for each year you keep those foreign assets under wraps.
- Now, if you conveniently forget to mention those overseas goodies when you file your ITR, the taxman will see it as a deliberate attempt to dodge taxes, and guess what?
- You could end up behind bars for up to 7 long years! That’s not all, my friends.
- By not declaring your foreign assets, you’ll lose out on the privilege of claiming relief under the Double Taxation Avoidance Agreement for any moolah you earn abroad.
No matter which tax bracket you fall into, remember this: if you possess any foreign asset during the financial year, you better file that ITR.
Lucky for you, We are here to lend a helping hand with top-notch tax filing services and accurate disclosure of your overseas treasures in your ITR.
The Undisclosed Foreign Income and Assets (Imposition of Tax) Bill, 2015
The Undisclosed Foreign Income and Assets (Imposition of Tax) Bill, 2015 was brought forward in Lok Sabha on March 20, 2015 by the Finance Minister, Mr. Arun Jaitley.
The Bill aims to replace the Income Tax (IT) Act, 1961 for taxing foreign income and is applicable to Indian residents.
It imposes penalties for hiding foreign income and includes provisions for criminal liability in cases of tax evasion related to foreign income.
Tax rate:
Undisclosed foreign income or assets from the previous assessment year would be subject to a flat tax rate of 30 percent.
There would be no exemptions, deductions, or carried forward losses allowed, as provided under the IT Act.
This tax rate would come into effect from April 1, 2016 onwards.
Scope of taxable income:
An individual’s total undisclosed foreign income and assets would include:
(i) income from a source outside India that hasn’t been disclosed in the filed tax returns,
(ii) income from a source outside India for which no tax returns have been filed, and
(iii) the value of undisclosed assets located outside India.
One-time compliance opportunity:
A limited-time opportunity would be provided to individuals who possess any undisclosed foreign assets for all previous assessment years.
These individuals would be allowed to declare their assets before a tax authority and pay a penalty at a rate of 100%.
Tax Authorities:
The relevant tax authorities, as specified under the IT Act, would have the power to inspect documents and evidence.
The proceedings would be conducted judicially.
Penalty for offenses:
Undisclosed foreign income/assets:
The penalty for not disclosing foreign income or assets would be three times the amount of tax payable, in addition to the 30% tax payable.
Failure to furnish returns:
A fine of Rs 10 lakh would be imposed for not filing income tax returns related to foreign income or assets.
However, this penalty would not apply to assets valued at five lakh rupees or less.
Undisclosed or inaccurate details of foreign assets:
If an individual who has filed tax returns fails to disclose their foreign income or provides inaccurate details, a fine of Rs 10 lakh would be levied.
This penalty would not apply to assets valued at five lakh rupees or less.
Second-time defaulter:
Any person who consistently fails to pay their due taxes would be required to pay an amount equal to the tax arrears.
Other defaults:
If a person fails to comply with the tax authority by
(i) answering questions,
(ii) signing off on a statement, or
(iii) attending or producing relevant documents, they would be subject to a fine ranging from Rs 50,000 to two lakh rupees.
Prosecution for certain offenses:
Willful attempt to evade tax:
The punishment for this offense would be rigorous imprisonment ranging from three to ten years, along with a fine.
Willful attempt to evade payment of tax:
The punishment for this offense would be rigorous imprisonment ranging from three months to three years, along with a fine.
Failure to furnish returns or non-disclosure of foreign assets in returns:
The punishment for these offenses would be rigorous imprisonment ranging from six months to seven years, along with a fine.
Punishment for abetment:
The punishment for this offense would be rigorous imprisonment ranging from six months to seven years, along with a fine.
Liability of the company:
In the case of any offense under this Act, every person responsible for the company would be held liable for punishment.
However, their liability would be absolved if they can prove that the offense was committed without their knowledge.
What is Schedule FA (Foreign Assets)?
When we talk about Schedule Foreign Assets (FA) in the ITR, we’re basically diving into the nitty-gritty of your foreign assets stashed outside India.
You know, all those goodies you’ve got under your belt legally, as a beneficiary, or even as a beneficial owner?
They all need to come out of the shadows when you file your ITR-2 or ITR-3, whichever floats your boat.
Now, let’s get a bit legal here. According to the Income Tax Act of 1961, if you’re a resident or an ordinarily resident Indian, you’ve got to spill the beans on your foreign income, assets, accounts, and shares in a specific format when you file your ITR.
It’s all part of the grand plan to tackle those sneaky tax evaders who think they can pull a fast one through offshore routes.
Schedule FA plays a mighty important role in helping the Indian government bust tax evaders by making it a must to spill the beans about any foreign assets.
It lets the government keep tabs on the holdings of Indian residents abroad and puts a stop to any funny business like money laundering.
But wait, there’s more! If you’re a resident, you can also dodge paying taxes twice on the same income by cashing in on the DTAA (Double Taxation Avoidance Agreement).
The DTAA (Penalty For Non Disclosure of Foreign Assets), or the double taxation avoidance agreement, is like an agreement between two nations that makes sure you don’t end up shelling out taxes multiple times in different countries.
According to the Income Tax law, if you’re a resident taxpayer who happens to own some specified foreign assets at any point during the whole accounting year, you gotta spill the beans about them in your ITR.
But hey, if you’re a non-resident or a resident who ain’t ordinarily resident, then you can breathe easy because you don’t have to let the cat out of the bag about your foreign assets in your ITR.
What Foreign Assets Need to be Disclosed in Schedule FA?
Just a heads-up, if you happen to have any of the foreign assets listed below, it’s absolutely necessary to disclose them in your ITR (Income Tax Return).
- Foreign depository accounts: These are accounts held in foreign banks where you keep your moolah.
- Immovable property outside India: If you own any property abroad, it’s essential to let the tax authorities know.
- Any other capital asset outside India: Apart from real estate, this includes any other valuable possessions you may have in a foreign land.
- Foreign bank accounts: If you have accounts in banks overseas, it’s time to spill the beans about them too.
- Financial interests: This covers investments or any other financial involvements you have outside of India.
- Foreign accounts where you are an authorized signatory: If you’re the boss when it comes to signing on foreign accounts, you better mention that as well.
- Foreign Custodian accounts: If you have accounts managed by foreign custodians, make sure you reveal those too.
- Trusts outside India or any other foreign source of income: If you’ve got trusts or any other income sources from foreign shores, they need to be on the record.
- Accounts where the assessee has signing authority: If you have the power to sign on certain accounts, whether they’re foreign or not, make sure to disclose that information as well.
Remember, it’s better to play by the rules and declare these foreign assets in your ITR.
Let’s keep things transparent and avoid any unnecessary complications.
Details Required to be Furnished for each Foreign Asset
Alright, when you’re filling out Schedule FA of the Income Tax Act, 1961, you gotta make sure you provide the following deets for each foreign asset or foreign account you hold:
- Country name and code: Tell us which country it’s in, and give us the code too for Penalty For Non Disclosure of Foreign Assets.
- The name of the foreign entity: What’s the name of the entity you’re dealing with overseas?
- Address and zip code of the foreign entity: We need the full address, including the zip code.
- Account number of the foreign repository: Give us the account number for that foreign repository.
- Status of the account and the account opening date or the date of acquisition of the asset: Let us know if the account is active or closed, and give us the date it was opened or when the asset was acquired.
- Initial value of the investment: How much did you initially invest in that asset?
- The highest value of the investment during the accounting period: What was the highest value it reached during that period?
- Closing value of the investment on the last date of the accounting period: And what was its value at the end of the accounting period?
- The value of gross interest credited in the asset account during the accounting year: How much interest did you earn on that account throughout the year?
- The amount received during the sale or redemption of an investment during the accounting period: Lastly, tell us how much you received when you sold or redeemed the investment during that period.
Make sure you’ve got all these details handy, mate! It’s essential for filling out Schedule FA and staying on the right side of the taxman.
