Declarants of overseas assets not to face action under FEMA

The Reserve Bank of India (RBI) said that there will be no penal action against those declaring their undisclosed assets abroad by September 30

By Sai Nikesh D

The government seems to be making all out efforts to encourage more and more people to declare their hidden assets even as a few days left for the deadline of the amnesty scheme for voluntary disclosers under the new black money law.

A year after the introduction of the Undisclosed Foreign Income and Assets (Imposition of Tax) Act 2015 in May 2014, the government in July this year announced a scheme to provide amnesty for those disclosing their unaccounted assets.

Under the scheme, the government gave a 90-day compliance window for those having assets in foreign countries to declare their undisclosed wealth, pay 60% tax and penalty and escape punishment which includes up to 10 years of jail term.

On Thursday, the Reserve Bank of India (RBI) came out with an assurance that there will be no penal action against those declaring their assets by September 30, the deadline of the scheme.

“No proceedings shall lie under the Foreign Exchange Management Act, 1999 (FEMA) against the declarant with respect to an asset held abroad for which taxes and penalties under the provisions of Black Money Act have been paid,” the RBI said in a statement.

The declarants will be allowed to dispose of such assets and bring back the proceeds to India through banking channel within 180 days from the date of declaration, the central bank said.

However, for those willing to hold such assets “may apply to the Reserve Bank of India within 180 days from the date of declaration if such permission is necessary as on date of application”.

“The Reserve Bank of India will deal with such applications as per extant regulations. In case such permission is not granted, the asset will have to be disposed of and proceeds brought back to India,” the RBI statement said.

Experts say that the additional clause for those willing to hold their accounts after declaration is against the spirit of the compliance window.

“It appears that the RBI expects all declarants to dispose of the foreign assets and there doesn’t appear to be any possibility of continuing to hold the foreign assets. This goes against the spirit of the current scheme where one understood that after paying 60%, one is exhaled of all the past and future consequences,” said Nilesh Kapadia, Partner, N M K & Co.,Chartered Accountants, Trustee of Foundation for International Taxation.

On the provision of 60% tax levied on declarants under compliance window, he said that the rate is too high to prompt tax evaders.

“In many countries, the rate of taxes for such transactions is as below as 5%. India compares very unfavourably with such countries and there are many persons who are currently not taking advantage of the scheme merely because the rate of taxes is very high,” Kapadia added.

The RBI’s move is seen as the last-ditch effort to include maximum number of declarants. Earlier, the Income Tax department had issued two set of clarifications to address concerns of the potential declarants. So far, the government has received declarations amounting to Rs.6,500 crore under the compliance window.

This article was published in The Dollar Business on September 25, 2015

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