When you use the one-time compliance window

A one-time compliance window - open until September 30, 2015 - has been notified under The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, to declare undisclosed foreign assets and undisclosed foreign income, and come clean. Over the last two months, the Central Board of Direct Taxes has come out with two sets of FAQs to assuage the fears of taxpayers. Tax experts Tapati Ghose, partner,Deloitte Haskins & Sells, and Prakash Hegde, director, Deloitte Haskins & Sells, de-fog some key issues for tax payers when they avail themselves of the compliance window.

Disclosure of foreign bank accounts

In the case of a foreign bank account, value for purposes of declaration is the sum of all the deposits made in respective bank accounts. Any amount withdrawn from such bank accounts, and re-deposited would not be counted. A reduction from gross deposits is available for withdrawals that have been used to acquire new assets, or create deposits in another bank account being disclosed. Deposits or credits not chargeable to income tax are not to be considered for purpose of valuation.

Where statements of such foreign bank accounts for any period are not available, the tax payer may declare for that period on his 'best estimate' basis. Such declaration is admissible provided he obtains a certificate from the bank, or any other evidence, to demonstrate that the details are not available or obtainable. In case it is later determined that an estimate was made despite the fact that bank statements or other evidences were available, the declaration would be considered void to the extent of non-disclosure. Immunities granted to the declarant will not be available on the shortfall. If the value declared on best-estimate basis is more than the final determination, such excess is not refundable.

In the case of bank accounts in joint names, if the account has been contributed only by one of the account holders, the declaration by that person would be sufficient.

Disclosure of property, including shares, mutual funds
Where property has been acquired partly out of the undisclosed foreign income or asset, and partly out of other sources, value relatable to such property will only be so much of the fair market value of the property as a proportion of undisclosed foreign income or asset used for acquiring it. Any asset inherited by tax payer, but acquired by the original owner from his or her undisclosed foreign asset or income, should also be declared.

Where a person holds an undisclosed brokerage account overseas, which has shares, mutual fund, as well as cash, the brokerage account cannot be considered as one single asset. Assets held in the brokerage account have to be valued and declared separately.

It is not mandatory to file a valuation report. However, the valuation report, or any other document, used to arrive at the value is to be maintained to explain it if called for.

Once an asset is disclosed under the compliance window, the cost of acquisition of that asset for the purpose of computation of capital gains on subsequent transfer will be the value considered for the purpose of such disclosure. Also, the period of holding will be deemed to have started from the date of such disclosure under the compliance window.

Disclosure to be made by an employee on foreign assignment
A foreign asset acquired out of income that was not chargeable to income tax does come under the purview of the Act. Accordingly, employees, who may have acquired foreign assets out of income earned during his or her foreign assignments out of either income not chargeable to income tax (while s/he was a tax non-resident in India) or from taxable income that was offered to income tax in India, are not required to declare such foreign assets.

An employee who qualifies to be a tax resident (other than Not ordinarily Resident) in India is required to offer accretions to his or her overseas pension account (eg interest, dividend etc.). If the same has not been done in the past, it needs to be declared under the compliance window.

Where an employee has received salary taxable in India into a foreign bank account without deduction of tax at source, the employer is liable to pay interest till the employee files her income tax return in India.

Where such salary income is disclosed for the first time under compliance window, the employer is liable to pay interest on such tax from the date of payment of salary to the date of payment of tax by the employee. Penalty for failure to deduct tax at source may befall the employer, unless he is able to prove 'reasonable cause' for such default (of not deducting tax at source).

Investments in trusts, or in the name of spouse or child
Where a private trust has been created by a settlor outside India out of undisclosed income chargeable to tax in India, the settlor (who is considered as the beneficial owner) or the trustee of the trust may make the declaration under compliance window. Immunity will be provided to the settlor, trustee and the beneficiaries.

Where the undeclared asset held in the name of taxpayer's spouse was created out of the taxpayer's undisclosed income, the taxpayer - and not the spouse - being the beneficial owner should make a declaration under the window.

Such declaration will give immunity to both the taxpayer and his or her spouse.