The income tax (I-T) department will take for granted the disclosures of hidden overseas wealth during the limited compliance period to be announced early this week under the new black money law. The persons using the window will not be asked any probing questions on whether the extent of such wealth reported by them during the period is an understatement.
The idea is to reassure potential subscribers that the compliance window of a few months was not a trap but a safe exit route from the liabilities of past offences. Accordingly, the responsibility to receive applications would not be with assessing officers, but with an officer not below the rank of a commissioner.
This is a significant departure from the service tax amnesty scheme of 2013, under which officers had the power to turn down amnesty requests for allegedly ‘dishonest’ disclosure, exposing the applicant to normal legal proceedings after the admission of guilt. What deters people from reporting tax-evaded wealth is the risk of the disclosure itself triggering further questions on its truthfulness and a possible opening up of the accounts of other years.
The black money law compliance scheme, instead, would be on the lines of the hugely successful Voluntary Disclosure of Income Scheme of 1998 that had accepted declarations of unaccounted wealth of more than R7,000 crore held by about 3.5 lakh people without any questions.
The compliance period offers a chance to avoid 120% penalty and three to seven years rigorous imprisonment, provided for in the Undisclosed Foreign Income and Assets (Imposition of Tax) Act brought in this year.
“There is no question of any scrutiny once 60% of the previously unreported wealth is offered for tax,” said a person familiar with the development. The person added that since those who sign up for the scheme are actually in possession of the wealth, there is no need for extra time to pay up after the limited compliance period.
However, protection from further questions and scrutiny would be limited to the amount of foreign income and assets disclosed during the compliance window. If the tax department comes to know through its information exchange agreements with other countries about any part of wealth that has not been covered by the disclosure made under the compliance window, that evasion could expose the person to the penalty provisions in the black money law, explained an official.
“The new black money law provides for a separate regime for taxation of undisclosed foreign income/asset which was not disclosed or reported under the Income Tax Act and which has come to the notice of the tax authority on or after 1 April 2015. The foreign income/asset detected by the tax authority before 1 April 2015 will continue to be governed by the income tax law,” explained Rajiv Chugh, tax partner at EY.