NEW DELHI: To deal with the menace of black money stashed abroad, the government on Friday notified the rules for calculating overseas income and assets under the stringent foreign black money law, which comes in to force from July 1.
According to the rules notified by the Central Board of Direct Taxes (CBDT), the value of the overseas assets, including immovable property, jewellery and precious stones, archaeological collections and paintings, shares and securities and shares in unlisted firms abroad will be calculated at the fair market value.
Questioning a provision of the notification, tax expert R N Lakhotia says, “It will be very difficult to determine the fair market value in first place and secondly if the value of say a property purchased at `100 lakhs 10 years ago and now values at `40 lakhs, what will the government do in that case.”
Lakhotia mentioned that before the Lehman Bros crisis, property prices were in its peak during 2007-08, and till today property prices in the US hasn’t recovered ground. They are still down by 35-40 per cent.
The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, which was passed by Parliament on May 26, provided a one-time 90-day ‘compliance window’ that expires on September 30, 2015 to come clean and declare their assets abroad and pay taxes.
In case of the wilful defaulters who do not wish to avail this facility and are later caught, for them the government will impose a penalty and tax of 60 per cent to offenders who stashed black money abroad. In case they do not take advantage of the compliance window, which will have a short duration, they would have to pay 30 per cent tax, 90 per cent penalty and face criminal prosecution which could result in jail term of up to 10 years.
Gautam Nayak, a Mumbai-based chartered accountant says, “Three months time is enough for people who actually want to disclose their assets stashed abroad and wish to pay legitimate taxes. It could be possible the government may grant them some relief later in due course of paying legitimate taxes.”
In a major action against black money hoarders and money launderers, the Enforcement Directorate (ED) has attached assets to the tune of `9,003 crore and filed 173 chargesheets in the financial year 2014-15. The Income Tax (IT) department has filed 121 cases of prosecution against those whose names had appeared in the HSBC Geneva bank list.
The value of an overseas bank account will be the sum of all deposits made in the account since its opening, the CBDT rules said.
Earlier, Finance Minister Arun Jaitley said that countries world over plan to put in place a mechanism for automatic exchange of information on any transaction from 2017.
The investigation agency is working on as many as 4,776 cases under FEMA at present while it has issued notices to the accused after completing investigations in 1,304 cases.
For valuing shares and securities of listed entities, the rules said the fair market value will be the higher of the cost of acquisition or average of the lowest and highest price on the date of valuation.
The CBDT also provided a formula for calculating the fair market value of an unquoted equity shares and provided a methodology for calculating the interest of a person in a partnership firm, association of persons or Limited Liability Partnership (LLP).
Commenting on the same, Lakhotia said, “This is again virtually impossible since if a person entered into a contract 15 years back with a foreign resident, the actual valuation will be very difficult to determine. Also, will the government authorities accept the valuation done by the assessee himself.”
The declaration of assets abroad has to filled by the persons in seven various forms. The holders of the assets will have to disclose details of the location of bank accounts, date of opening and sum of all credits in the prescribed format. Also the format for appeals to Commissioner (Appeals) and Appellate Tribunal have been provided.
According to the notification, the Reserve Bank’s reference rate on the date of valuation should be used for converting the value of foreign assets and income into Indian rupee.
Where the fair market value of an asset is determined in a currency other than one of the permitted currencies designated by the RBI, they should be converted into U.S. dollars on the date of valuation as per the rate specified by the central bank of that country. Thereafter, the value in dollar would be converted into rupee, the notification said.