The different shades of “black”:The Black Money Law 

How “black” can black money get? In the eyes of the taxman, there are apparently varying shades of the colour black.

The more I study the new Black Money Law, the more intrigued I get. Following up on my first article on the new regulation, I’d like to highlight another glaring inconsistency. Oddly, the value of assets purchased with black money changes, based on whether they are located in India or overseas.

The law is completely unfair in so far as it proposes to tax the undisclosed assets at the current market value. This is in complete contrast to how the same asset would be taxed had it been situated in India.If the taxman was to discover an undisclosed immovable property in India acquired by a person in the year 2010 he would not tax it at the current market value of the property, he would instead tax it at the price paid for the property at the time of its purchase and that too the amount documented to have been paid for its purchase.

However, under the new Black Money Law, the current market value of the property on the date of its disclosure would be subjected to tax. This means that the tax shall not only be payable on the 'black money' (undisclosed money) paid to acquire the property but also on the appreciation in the price of the property.This is clearly against the basic principle of taxation that tax cannot be levied on unrealised appreciation in the price of an asset. The appreciation in the value of the asset can only be taxed at the time of sale of the property and the consequent realisation of the appreciated value of the property in the form of capital gains tax. Incidentally, in the case of an Indian asset the taxpayer would get the additional benefit of indexing the cost of his asset to make up for the loss in real value of the rupee for the period beginning with the year of the asset up to the year of its sale !

As said before, this basic principle of taxing the appreciation only at the time of its realisation is being followed in the Indian taxation laws in respect of assets situated within India but it has strangely been overlooked in drafting the Black Money Law.Further, the Black Money Law proposes to tax not only the appreciation in the value of the property, per se, but also the appreciation in the value of the respective currency until the date of declaration of the asset!

For example, X purchased a property in the UK out of undisclosed funds of £1Million (= Rs.65 Million) in the year 2001. If the current market value of the said property is £2Million (=Rs. 200 Million) then X is expected to declare the property by 30th September 2015 and pay 60% tax on the current market value which is equal to Rs.120 Million. If he, for some reason, does not make the declaration by 30th September 2015, then he will have to pay 120% as tax (Rs.240 Million) and also be liable to be jailed for upto 10 years!

I do believe that the new law is a step in the right direction. However, I also believe that it should be unambiguous and consistent in its interpretation of “black” assets.

Rahul Kapoor ,Chartered Accountant ;Managing Partner –RKACA & Associates LLP

The New Black Money Law: A mis-step in the right direction

The New Black Money Law: A mis-step in the right direction

Government efforts at preventing tax evasion and generation of black money go as far back as Indian independence. In fact, according to a government White Paper on Black Money,investigations into tax evasion and recommendations go even further back to 1936. Having said that, the latest legislation to tax unaccounted wealth stashed abroad is laudable and definitely a step in the right direction. This will not only help tax the income, which escaped assessment earlier, but also be a strong deterrent to accumulating unaccounted wealth abroad.

Yet, the methods of implementation leave much to be desired and have created a furore amongst tax payers. As a case in point, the aspect on Limitation appears to be quite draconian. Let me elaborate. The Act imposes no limit as regards limitation, and if a person does disclose holdings, then these can go back up to 20 to 40 or even 50 years. This black money law is very harsh as compared to the law related to undisclosed assets within the country. As per the limitation clause under section 148 of Income Tax Act (reopening of assessment), the Income Tax Department cannot go beyond 1st April, 2008 for any income/ asset disclosed or detected in the current financial year. If a person acquired an asset in India from undisclosed income before 1^st April 2008, the IT department cannot initiate any proceedings against the person more than 6 years from the end of the assessment year to which it pertains. Even if the department takes a stringent action and conducts a search, and discovers an undisclosed asset, that person is not liable to pay any tax whatsoever and it will lead to no tax recovery, whereas the taxation of undisclosed foreign assets under the Black Money Law can go far beyond 6 years in assessment.

Under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, if a person an undisclosed foreign, he will have to pay 30% tax plus 30% penalty if her declares it by till 30 September 2015, and if not declared till 30 September 2015 he will have to pay 120% of the total value of the asset.

Limitation is one of the canons of the justice system across the world. All civil and fiscal laws invariably have a limitation clause which this Act does not adhere to.

The fact is that India still ranks a low 154 out of 189 economies on this year’s ease of paying taxes rankings. To make a strong, efficient and effective tax regime, each step along the way will have to be carefully thought through. Let us hope the government can bring some relief to tax payers on the limitation front.

Rahul Kapoor ,Chartered Accountant

Managing Partner –RKACA & Associates LLP