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TMI BlogClarifications on Tax Compliance for Undisclosed Foreign Income and AssetsX X X X Extracts X X X X X X X X Extracts X X X X ..... s deposited in a foreign bank account. The person became resident in India in F.Y. 2013-14 and since then only interest is being credited to the account. Such income including interest income has not been offered to tax in India. In such case what should be the disclosure under the tax compliance? Answer: As stated the person was non-resident for the year F.Y. 2012-13 and earlier years, and the foreign income for such years was not chargeable to tax in India. For the F.Y. 2013-14 and subsequent years, while he is resident in India, the person's global income is taxable in India. Accordingly, the declaration of foreign bank account in this case, which has been made partially out of undisclosed income chargeable to tax, may be made. In this case, the value of undisclosed foreign bank account shall be computed as per rule 3(1)(e) of the Rules and a deduction as per section 5 of the Act shall be allowable. Therefore, the value of such account shall be the sum of all credits in the bank account as reduced by income not chargeable to tax in India (exempt income), which has been credited into such account. In this case, exempt income would be the foreign income deposited in the bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 01.04.2014 onwards. The person is not entitled for any credit of taxes paid, if any, in the foreign country. Question No.4: A private trust was created outside India by a settlor out of undisclosed income chargeable to tax in India. The trust has set up a company holding 100% shares. What are the options for declaration under Chapter VI of the Act in such case? Answer: In this case, the settlor is the beneficial owner of the assets held under the trust. Therefore, declaration under Chapter VI of the Act may be made by such settlor in the capacity of a beneficial owner in respect of the assets of the trust. Alternatively, the trustee of the trust holding assets on behalf of beneficiaries may make the declaration of the assets of the trust in the capacity of a representative assessee. The trustee is eligible for declaration even where he is a non-resident. In respect of the assets declared under Chapter VI of the Act, immunity shall be available to the settlor, trustee and the beneficiary. Further, where the settlor of the trust has passed away, the beneficiary of the trust may make a declaration in respect of his share in the assets of the trust. In case the beneficiary is a mi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Agreement (DTAA) under the tie breaker rules the person became resident of the foreign country. Whether such person needs to file a declaration under Chapter VI of the Act in respect of assets acquired/ made out of foreign income earned during F.Y. 2011-12 in which lie was non-resident in India as per the DTAA? Answer: As per section 59 of the Act, a declaration may be made in respect of any undisclosed asset located outside India and acquired from income chargeable to tax under the Income-tax Act for any assessment year prior to assessment year beginning on 01.04.2016. In this case, since the foreign income of F.Y. 2011-12 was not chargeable to tax in India under the Income-tax Act as the assessee was a non-resident as per DTAA, the same is not required to be declared under Chapter VI of the Act. Question No.7: A person has a foreign bank account made out of undisclosed income chargeable to tax in India. Over a past several years, the person invested in securities which were funded from such account. Some of the securities were sold and the proceeds were deposited into the same account. Some expenditure has also been made from the bank account. What would be the declaration in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red to bank account (BA2) shall be considered (while adding credits) in the valuation of BA2. Question No.8: A person holds an undisclosed brokerage account in a foreign country which holds within itself shares, mutual funds as well as cash. The shares and mutual funds in the brokerage account have had multiple trades over a period of time. Further, dividend and interest has been credited to the account. Whether the brokerage account can be declared as one asset under Chapter VI of the Act or separate disclosure in respect of shares, mutual funds and cash is required to be made? Answer: The rules read with the Act provides for different computational mechanism for valuing shares, mutual funds and cash holding in a bank account. Therefore, a composite valuation of brokerage account cannot be made and separate valuation of shares, mutual funds and cash holding is required to be made. Further, the declaration shall consist of different assets with different valuations. The valuation of such assets shall be similar to what has been explained in answer to Question No. 7. Question No.9: A person has declared an undisclosed foreign bank account after computing its value as per the Rul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e undisclosed asset in his name, being a beneficial owner. The immunity in respect of the asset declared shall be available to both the person and his spouse. Question No.12: Where a partner of partnership firma files a declaration in respect of undisclosed foreign assets held by the firth, then whether immunity would be available to partners of the firm? Answer: Yes, the partners of the partnership firm shall not be liable for any offence under the Income-tax Act, Wealth-tax Act, FEMA, Companies Act and the Customs Act in respect of the declaration made in the name of the partnership firm. Question No.13: An undisclosed foreign asset was acquired in F.Y. 2012-13 relating to A.Y. 2013-14. The assessment order for A.Y. 2013-14 has been passed on 10th August, 2015 in which such undisclosed foreign asset was not examined and consequently went untaxed. Can a declaration of such asset be made under Chapter VI of the Act ? Answer: Yes, declaration of such undisclosed foreign asset can be made under the Chapter VI of the Act Question No.14: Will the declarations made under Chapter VI of the Act be kept confidential? Answer: The Act incorporates the provisions of section 138 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n such income by the spouse/child, the bank account with such balance needs to be declared by the spouse/child. Besides, any accretion to the account of the spouse/child in the nature of interest etc. may also be required to be declared by the spouse/child. Question No.17: In respect of undisclosed foreign asset declared under Chapter VI of the Act, is it mandatory to include such asset in the books of account of the person? Answer: It is expected/ required that the declarant will show the asset so declared in his books of accounts and if he is not required to maintain books of account, he shall maintain the record of such asset. Further, if he continues to hold such asset he shall be required to report such asset in schedule FA of the return of income. Question No.18: As per rule 3(1)(e), for the purpose of valuation of bank account, any deposit made from the proceeds of any withdrawal from the account shall not be taken into consideration while computing the value of the account. Does this mean that only redeposit of cash withdrawn is covered for this purpose or it would cover withdrawal used for funding cost of investment where proceeds are subsequently deposited on sale of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt where inward and outward cash movement takes place from the account. Therefore, the valuation and declaration of an e-wallet account may be made as in the case of a bank account. Question No. 23 : Where a public limited company makes a disclosure under Chapter VI of the Act then whether the Directors of the company be granted immunity against prosecution launched by shareholders under the SEBI Act/ Regulations or Indian Penal Code (IPC)? Answer: The Act does not provide immunity against offence punishable under the SEBI Act/Regulations or under IPC. Question No. 24 : A person acquired an immovable property in a foreign country for USD 50,000 out of which investment of USD 10,000 was made out of his own undisclosed income chargeable to tax in India and balance USD 40,000 was made out of loan acquired from a bank. The fair market value of the property as on 01-07-2015 is USD 100,000. Whether the property can be declared under Chapter VI of the Act and if yes, what would be the value of declaration in such case? Answer: The property was partially acquired from undisclosed income and partially from amount not chargeable to tax. The property can be declared under Chapter VI of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Circular No. 13 dated 06-07-2015 says that a person may make a declaration under section 59 of the Act in respect of an undisclosed foreign asset acquired by him in the year in which he was resident in India. Thus a specific situation has been dealt in answer to question no. 23 of Circular No. 13 dated 06-07-2015 which answers the query clearly. Question No. 27: A person acquired an immovable house property in the year 2012-13 located outside India out of undisclosed income chargeable to tax in India. A notice under section 143(2) for assessment year 2013-14 (relevant to previous year 2012-13) has been issued prior to 30-06-2015 and the assessment proceeding is pending before the assessing officer. As clarified in Question No. 8 of Circular dated 06-07-15 the assessee is not eligible for declaration under Chapter VI of the Act in respect of this asset, however, he shall inform the assessing officer about the acquisition of such asset in the assessment proceedings and the same shall be assessable under the provisions of the Income-tax Act. Whether the provisions of section 72(c) of the Act will apply in this case and the Assessing Officer may proceed to assess the undisclosed as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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