The government, true to its intent to track foreign assets and black
money stashed overseas, has introduced the Black Money (undisclosed
foreign income and assets) and Imposition of Tax Act 2015 (The BMA). The
BMA is effective from April 1, 2015. The general impression amongst
people is
that black money is a worry for only the rich and famous. Unfortunately, given the extensive employee movement in today’s world, a regular employee too may be impacted by the BMA.
Focus of BMA
The Act applies to all assessees who qualify to be a “resident and ordinarily resident” (ROR) as per Section 6 of the Income-Tax Act (ITA). The BMA levies a tax of 30 per cent on the total undisclosed foreign income and assets of a person in a year. The total undisclosed foreign income and asset in a year is the income from a source outside India that has not been disclosed in the return or where the India tax return is not filed and the value of undisclosed asset. Undisclosed asset, located outside India, held by the assessee in his name or as a beneficial owner, would fall within the purview of BMA, if the person has no explanation about the source of investment in such asset or the explanation provided is unsatisfactory in the opinion of the tax authorities. Such foreign undisclosed assets shall be charged to tax on its value in the previous year in which such asset came to the notice of the tax authorities. The undisclosed asset would be valued at the fair market value in a manner that has been prescribed.
The scope of the BMA is wide and the penalties are stringent. Under the BMA, the tax would be 30 per cent without the slab rate benefit and with a penalty levy upto three times on the tax amount alongwith the risk of prosecution.
Stock awards
Many overseas companies extend their stock option plans to the employees of their Indian subsidiaries. Thus, even without travelling overseas, the employees would be owners of shares of the foreign company. Such employees would be required to offer to tax the dividends earned on such shares as well as report the shares owned as foreign assets if they qualify to be ROR.
Overseas income
Employees on overseas assignment may continue on Indian payroll or shift to overseas payroll. In either case, ROR employees would need to disclose remuneration and benefits received overseas if the same are not included in the Form 16. Likewise, bank accounts and balances in social security plans as well as personal assets like property, cars etc. are required to be disclosed by ROR employees.
Deferred income, bonus, or salary arrears received overseas in subsequent years may also need to be reported. One also needs to be careful in disclosing beneficial interest and accounts where employees hold a signing authority in overseas jurisdictions. For example, it is common for an Indian CEO to hold signing authority for various branches and subsidiaries overseas. In such case, he would need to report the same in his own tax return.
Expatriates
Individuals coming to India on a visa (employment, business or student) would be required to disclose their overseas assets in the year and income when they qualify to be ROR in India. However, as notified in the tax return forms such individuals are granted relief from disclosure if the assets were acquired when the individual was a non-resident in India and there is no income from such asset during the year.
For example, a foreigner owning a house overseas that is not rented need not be disclosed. One needs to note that the exemption is available to only overseas passport holders who have travelled to India on a visa. Thus PIO/ OCI card holders may not be eligible for this exemption.
Conclusion
Disclosure and income reporting is critical, irrespective of the quantum of income involved as the law does not provide any threshold limits. In case some income disclosures have been missed in the past, the BMA provides for one-time compliance (OTC) opportunity for such lapse. The announcement of the OTC is awaited
that black money is a worry for only the rich and famous. Unfortunately, given the extensive employee movement in today’s world, a regular employee too may be impacted by the BMA.
Focus of BMA
The Act applies to all assessees who qualify to be a “resident and ordinarily resident” (ROR) as per Section 6 of the Income-Tax Act (ITA). The BMA levies a tax of 30 per cent on the total undisclosed foreign income and assets of a person in a year. The total undisclosed foreign income and asset in a year is the income from a source outside India that has not been disclosed in the return or where the India tax return is not filed and the value of undisclosed asset. Undisclosed asset, located outside India, held by the assessee in his name or as a beneficial owner, would fall within the purview of BMA, if the person has no explanation about the source of investment in such asset or the explanation provided is unsatisfactory in the opinion of the tax authorities. Such foreign undisclosed assets shall be charged to tax on its value in the previous year in which such asset came to the notice of the tax authorities. The undisclosed asset would be valued at the fair market value in a manner that has been prescribed.
The scope of the BMA is wide and the penalties are stringent. Under the BMA, the tax would be 30 per cent without the slab rate benefit and with a penalty levy upto three times on the tax amount alongwith the risk of prosecution.
Stock awards
Many overseas companies extend their stock option plans to the employees of their Indian subsidiaries. Thus, even without travelling overseas, the employees would be owners of shares of the foreign company. Such employees would be required to offer to tax the dividends earned on such shares as well as report the shares owned as foreign assets if they qualify to be ROR.
Overseas income
Employees on overseas assignment may continue on Indian payroll or shift to overseas payroll. In either case, ROR employees would need to disclose remuneration and benefits received overseas if the same are not included in the Form 16. Likewise, bank accounts and balances in social security plans as well as personal assets like property, cars etc. are required to be disclosed by ROR employees.
Deferred income, bonus, or salary arrears received overseas in subsequent years may also need to be reported. One also needs to be careful in disclosing beneficial interest and accounts where employees hold a signing authority in overseas jurisdictions. For example, it is common for an Indian CEO to hold signing authority for various branches and subsidiaries overseas. In such case, he would need to report the same in his own tax return.
Expatriates
Individuals coming to India on a visa (employment, business or student) would be required to disclose their overseas assets in the year and income when they qualify to be ROR in India. However, as notified in the tax return forms such individuals are granted relief from disclosure if the assets were acquired when the individual was a non-resident in India and there is no income from such asset during the year.
For example, a foreigner owning a house overseas that is not rented need not be disclosed. One needs to note that the exemption is available to only overseas passport holders who have travelled to India on a visa. Thus PIO/ OCI card holders may not be eligible for this exemption.
Conclusion
Disclosure and income reporting is critical, irrespective of the quantum of income involved as the law does not provide any threshold limits. In case some income disclosures have been missed in the past, the BMA provides for one-time compliance (OTC) opportunity for such lapse. The announcement of the OTC is awaited
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