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Clarifications on Tax Compliance for Undisclosed Foreign Income and Assets

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..... income, not chargeable to tax in India, (exempt income) which was 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 .....

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..... Chapter VI of the Act . The valuation for the purpose of declaration shall be the sum of credits into the account from 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 .....

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..... claration shall be void. Question No.6: A person was a resident in India as well as a foreign country in F.Y. 2011-12. However, after applying the provisions of the Double Taxation Avoidance 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 .....

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..... 500 [amount deposited in the bank account; refer rule 3(3)] = Nil Value of 500 shares of S1 held as on valuation Date = Fair market value of 500 shares of S1 as on valuation date i.e. 01.07.2015 Value of 500 bonds of S2 Sold = (Higher of 5000 and 7000) - 7000 [amount deposited in bank account; refer rule 3(3)] = Nil Value of 100 shares of S3 held as on valuation Date = Fair market value of 100 shares of S3 as on valuation date i.e. 01.07.2015 Value of 400 shares of S4 Sold = (Higher of 4000 and 3000) - 3000 [amount deposited in bank account (new asset); refer rule 3(3)] = 1000 Value^ of bank account (BA1) = {10000 + 2500 + 50 + 7000 + 3000} - {4000 + 5000 + 3000 + 4.000} [acquisition of new asset; refer rule 3(3)] - 1500* [transferred to another bank account BA2 (new asset); refer rule 3(3)] = 5050 ^The reduction from the gross deposits in .....

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..... ails of entries in the account at the time of declaration. Question No.10: A resident has an immovable property in a foreign country out of which rental income is received. As per the DTAA, the taxation right on such rental income is exclusively with such foreign country in which the property is situated. The rentals were deposited in an undisclosed foreign bank account. For the purpose of declaration under Chapter VI of the Act , will the value of the bank account include such rental income deposited in the account? Answer: If the DTAA entered with any country provides that the rental income 'shall' be taxed only in the country in which the property is situated, then the taxation right in this respect will exclusively be with that country. In such case where property is outside India, the rental income is not chargeable to tax in India as per the Income-tax Act read with DTAA. Thus while working the value of undisclosed foreign bank account the deduction of rental income (in this case it is exempt income) will be made from the value of foreign bank account computed as per rule 3 of the Rules Question No.11: A person has an undisclosed property sit .....

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..... ployer shall not be deemed to be an assessee in default under section 201(1) of the Income-tax Act for non-deduction of TDS on such income. However, the employer shall be liable for other consequences under the provisions of the Income-tax Act, such as payment of interest under the provisions of section 201(1A) of the Income-tax Act from the date on which the tax was deductible on such income upto the date of payment of tax by the declarant. Penalty under section 271C of the Income-tax Act will also be attracted unless he proves that there was a reasonable cause for such failure as per the provisions of section 273B of that Act. Question No.16: A person (said, A) has an undisclosed foreign bank account made out of income chargeable to tax in India. From such account he has transferred money to his spouse's/child's (say, B) account from time to time. There are no independent credits into the spouse's account except for such transfers. Whether in this case both the person and the spouse need to declare the undisclosed foreign bank account under Chapter VI of the Act ? Answer: In a case where there is only transfer of money from the account of t .....

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..... ort of the undisclosed foreign asset along with the declaration. However, the declarant should have either the valuation report or any other document for arriving at the value of the asset. While e-filing the declaration on the departmental website a facility for uploading the documents is available. Question No. 20: If a query has been sent by the competent authority in respect of a foreign asset of a person to a Government of any country or territory outside India but no information has been received upto 30.06.2015 can such asset be declared under Chapter VI of the Act ? Answer: Such asset shall not be hit by section 71(d)(iii) of the Act and can be declared if other provisions contained in section 71 are not applicable. Question No. 21: What shall be the exchange rate for the purpose of conversion of foreign currency into Indian currency? Answer: As per rule 3(4) of the Rules, the value of the undisclosed foreign asset may be determined in the foreign currency in accordance with rule 3 of the Rules and the same is to be converted into Indian currency as per the reference rate of RBI for 01.07.2015. Question No. 22: A person maintains an e .....

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..... e issued an acknowledgement in Form 7 only in respect of such portion of the immovable property. Further, in such case it may be ensured that the mortgage payments to the bank have not been/are not being paid out of undisclosed income chargeable to tax in India. However, if the mortgage payments are made out of a foreign bank account made out of undisclosed income chargeable to tax in India then such account is also required to be declared under Chapter VI of the Act . Question No. 25: A person has an undisclosed foreign asset, being a bank account in joint names, say A and B. Should the disclosure of such account is to be made by both A and B or anyone can make the declaration? Answer: Where the funds in the bank account have been contributed only by A the disclosure is to be made by A. However, where the funds have been contributed by both A and B independently, the declaration is to be made by both A and B in respect of the funds contributed by them into the bank account. Question No.26: As per answer to question no. 23 of Circular No. 13 dated 06-07-2015, a person being a non-resident can file a declaration under Chapter VI of the Act in .....

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..... closed foreign asset has been acquired during the previous year for which scrutiny assessment proceedings are pending as on 30-06-2015 and the assessing officer has been informed during the assessment proceedings about the investment made in such undisclosed foreign asset, the same shall be assessable under the provisions of the Income-tax Act. However, where the assessing officer has not been informed in the pending scrutiny assessment proceedings under the Income-tax Act about such undisclosed foreign asset and it is not assessed under that Act, the same shall be liable for assessment under the provisions of the new Act when it comes to the notice of the Assessing Officer. (R. Lakshminarayanan) Under Secretary to the Government of India Copy to:- 1. PS to FM/ OSD to FM/ OSD to MoS(R). 2. PS to Secretary (Revenue). 3. The Chairperson, Members and all other officers in CBDT of the rank of Under Secretary and above. 4. All Pr. Chief Commissioners/ Pr. Director General of Income-tax - with a request to circulate amongst all officers in their regions/ charges. 5. Pr. DGIT (Systems)/ Pr. DGIT (Vigilance)/ Pr. DGIT (Admn.)/ Pr. DG (NADT)/ Pr. DGIT .....

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