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Program on Foreign Assets of Small Taxpayers – Disclosure Scheme, 2026 (FAST-DS) 19th September 2026 — Transcript

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0:17So good morning everyone
0:19and thank you for such a huge
0:21participation considering we are amidst
0:24the peak audit season as well as a gpati
0:26festival and despite that you know there
0:29have been significant registration and
0:30also attendance. So really thank you for
0:33that.
0:35uh why why this topic is important right
0:37you know as the name suggest you know
0:39the foreign assets of small taxpayer the
0:41fast scheme and why we need to be fast
0:44in this is because there's a deadline
0:45which is approaching for just 31st
0:47December while it may appear to be 3
0:50months down the line but the amount of
0:52the preparatory work the nuances that
0:54are involved the open issues that are
0:56involved are tremendous you know when I
1:00first started reading the scheme I said
1:01okay fine the scheme is good there is a
1:03lot of clarity how to value, which
1:05conversion rate to take, how to fill the
1:08form, etc. But after reading it two,
1:10three, four, five, 10 times, newer and
1:13newer issues are coming up. And as you
1:15try to apply it practically, there are a
1:18lot of questions which are still
1:19unanswered. And hence it is right time
1:22to get accustomed with this topic so
1:25that while we are speaking with our
1:26clients we know these are the issues and
1:29we look at what professional judgment
1:30that need to be exercised and also keep
1:32a tap on what are the guidance that is
1:35coming through civility.
1:38Uh I personally resonate with this topic
1:41uh because you know it goes with the gen
1:42principle you know accept your mistake
1:45seek forgiveness and you move to the
1:47higher level. So it is a very welcome
1:49opportunity to really admit whatever
1:53were the lacuna or the mistakes that
1:55have inadvertently happened so that one
1:58is leaving peacefully because as
2:00everyone knows the consequences under
2:02the black money act are tremendous you
2:05know uh and this really not worth the
2:08time sleep and the efforts to you know
2:10really get bothered with this rather
2:12people focus on business and you know
2:13move this along.
2:18So uh I think you know considering the
2:20attendance I think people would have
2:21come with lot of questions and lot of
2:23answers.
2:25Uh but to lay down the expectation clear
2:27there are you may probably go out with
2:29more questions that you came in. Uh I
2:31personally believe there should be some
2:33FAQ or a clarification that should come
2:36by uh because lot of questions are
2:38really unanswered and practically we may
2:41face it day in day out. So we may
2:43probably hope that you know civility
2:45comes up to make the schema a success.
2:49With this let's look into the subject
2:51proper that first a broad understanding
2:53why this is required you know because as
2:55you approach the client the moment you
2:57tell them the cost involved in the
3:00scheme people will be reluctant right
3:02that you know why we should adopt or go
3:04with this scheme but people will have to
3:06be educated that you know what are the
3:08consequences if you don't go with the
3:10scheme right so if you look at the black
3:13money act per se if suppose at At a
3:16later date of time there is a
3:18information with the tax office that
3:21there's an undisclosed income or a
3:23undeclared asset then the tax cost the
3:26penalty cost is punitive right you have
3:30a flat 30% taxes without any deduction
3:33for any expenses you don't get a credit
3:36for the taxes that you are paying into
3:37the foreign country no allowances
3:40nothing is a flat 30% tax plus 90%
3:44penalty which is almost 120% of value
3:47the risk of 10 lakh rupee penalty for
3:49non-disclosure
3:51prosecution risk in certain cases. So
3:54sum in substance the consequences under
3:57the black money act are so severe that
4:00this scheme appears to be more
4:02reasonable if at all you look on a
4:05comparative basis.
4:08Of course we need to be careful that you
4:10know black money act itself also has
4:12some immunity indirectly for assets you
4:15know which are less than 20 lakh rupees
4:17up to 20 lakh rupees. So while going
4:20into the scheme we also need to be
4:22mindful of the law which is there under
4:24the black money act as well
4:28carry forward those were you know
4:30penalty those are more monetary risk
4:32these are more the prosecution risk that
4:34can follow depending upon the intent and
4:37the happens and very important to know
4:41is that any offense under a black money
4:44act is a scheduled offense under the
4:46PMLA which can trigger even a PMA
4:49proceedings and actions under that law.
4:51And hence unlike an income tax where you
4:54are still within the contours of income
4:56tax law,
4:58any u any error or any mistake in this
5:03black money act can cost you not only in
5:05terms of the black money act but it can
5:06also travel to other laws. Right? Like
5:08if you have a FEMA, it could be a FEMA
5:10contravention, it could be a company's
5:11act contravention, it can be an offense
5:13under PMLA. And hence this very
5:15important that this is taken with due
5:18care.
5:22Is this the first time that we have got
5:24a scheme under black money act? No. You
5:26know when the law was introduced there
5:28was a onetime window scheme which hap
5:29which opened uh in 2015 where the
5:32deadline was the law came into picture
5:34on 1st July 2015 and the scheme was
5:38until 30th September 2015.
5:41When you really compare both the schemes
5:42and the scheme which is today which
5:44we'll call the fast scheme and the old
5:45scheme which was there in 2015 there are
5:48a lot of similarities between both
5:50manner of valuation you know certain
5:53concepts lot of things but equally there
5:57are a lot of differences as well. Look,
6:00when the black money act first came to
6:02picture, the scheme was that we want to
6:06allow people to, you know, declare take
6:08benefit clear of anything which was
6:11undisclosed income, undisclosed asset.
6:15There were circulars that were issued
6:16you know the immediately when the scheme
6:18got notified in July 6th July there was
6:20a circular number 13 which was issued.
6:23Two months later on they realized there
6:25are still problems. So on 3rd September
6:27another circular was issued and there
6:29are a lot of FAQs which probably helped
6:31to understand the intent and solve
6:34certain practical queries. Mind you this
6:36was like you know deadline being 30th
6:38September. The latest circular or FAQ
6:40had come on in September on 3rd
6:42September. We are almost more than one
6:45and a half month now into the scheme.
6:48Let's look at it. Hopefully they should
6:50come up with some circular being the
6:51deadline of 31st December.
6:55So let's look at what the similarities
6:57are and what the differences are
6:58broadly.
7:00If you look at the tax rate, it was same
7:0230 + 30 30% normal tax 30% penalty. Same
7:06is the case now. But now there are two
7:08basket. Basket one which is your
7:10undisclosed income undisclosed asset and
7:13basket two which is your undeclared
7:17asset. And we will look at what the
7:18differences are as we move forward and
7:20there are penalties which are very
7:22different. So for undeclared asset is a
7:23fee of 1 lakh rupee whereas for
7:26undisclosed asset undisclosed income is
7:27a tax and a penalty of 60% put all
7:30together.
7:33who was the target audience you know and
7:35that is how you know you will probably
7:37have some questions which may go with
7:39the genesis about why the scheme is
7:41introduced now what was the scheme
7:43earlier and whether we can apply the
7:46clarifications and the uh guidance which
7:49was available in the 2015 law directly
7:51into the new scheme you know see often
7:54we while we practice income tax we also
7:56say okay there's a case law which was in
7:57a particular section you know we could
7:59draw a reference and you know apply it
8:01even to the law today even though it is
8:02maybe you know 10 20 30 years old case
8:04law.
8:06Here the intent and the drafting of a
8:09scheme is little different. So we may
8:11possibly try to use that as a benefit
8:14but until a formal guidance is available
8:16there is always a risk.
8:202015 law they said okay we want to cover
8:23all the taxpayers.
8:2526 they said no we want to focus only on
8:28small taxpayers. And there's a big
8:30fundamental difference in both.
8:34Secondly, when the 2015 law came, it was
8:37the first time the law was being
8:38introduced. So, you know, the only
8:41limited problem was of undisclosed
8:43income, undisclosed asset. 11 years down
8:47the line, we have lot more problems
8:49because the scope of black money has
8:51been expanded. When it comes to
8:52reporting, you report not only your
8:54income, you report even if you're a
8:56beneficiary of an asset. You also report
8:59if you are a signary to a bank account
9:00although a bank account may not be held
9:02in your name. So there are lot of
9:04disclosure requirements that have there
9:07today which was not there when the 2015
9:09law came in because it was just a first
9:11year of implementation and the people
9:13had a chance to you know make a due
9:15disclosure after the scheme was getting
9:17over in the normal tax return. But here
9:20today we are faced with a situation that
9:22there are lot of instances where there
9:24could be a risk of penalty for
9:25non-disclosure but probably the scheme
9:28as it stands today absent any formal
9:31clarification may fall short of covering
9:34all the situations that we may come in
9:36day-to-day life and this is something
9:38very important that we need to keep in
9:40mind why the difference between both the
9:42schemes.
9:45So yes, guidance clarification will have
9:47to be taken but with a pinch of salt may
9:49not be binding. So we'll have to
9:51exercise a professional judgment about
9:53using it.
9:55And here the risk is you know we often
9:58take judgments you know day in day out
10:00you know to come to the lecture we say
10:01okay I'll catch so and so
10:06I'm driving a car okay signal right you
10:09exercise judgment day in day out even
10:12when you are practicing in your normal
10:14course you know you keep on advising
10:15people
10:16but here the problem is it is a oneways
10:20street under the scheme once you are in
10:23there's no way out. So if at all you
10:26know there is a stand that you have
10:28taken which probably department does not
10:30agree with then you are in a very
10:33pecular situation where you cannot come
10:35out. You have already disclosed
10:36everything. You already paid the taxes
10:38and there is no mechanism of a refund
10:40and hence due care has to be undertaken
10:43to exercise the professional judgment
10:45very carefully.
10:46We need to be very transparent with the
10:48client as well that you know we'll have
10:49to take them in confidence as well that
10:50look this is a view that is being taken
10:52which could be a gray area. So you know
10:55the client does not come back at a sock
10:57later on you know if there is something
10:58you know a different view that is being
11:00undertaken. It's very important that uh
11:02we ensure this.
11:07So why why the scheme exist?
11:10If you look today and now everyone would
11:12be knowing that in your uh income tax
11:14portal under the AIS tab now department
11:17has started publishing the financial
11:19information that is being received by
11:21them slowly and steadily not all
11:24information is getting captured probably
11:26not all countries are getting captured
11:28but at least there is some information
11:29available. So now because of the
11:32automatic exchange of information
11:34there's a very free free flow of
11:36information that is coming by. So now
11:39government knows really that you know
11:41what is a foreign asset that you are
11:42holding including the account number
11:44including the balance including the
11:45income. So you know earlier there was
11:48always you know whether department will
11:50ever come to know you know now the
11:52question is department knows it is only
11:54a matter of time when it comes. So this
11:56window is very important that everyone
11:58looks at the AIS portal but be very
12:02careful that is not the entire
12:04information that is a peaceable
12:06information you really need to dig down
12:08the records really need to ensure that
12:10any disclosure that you are making in
12:12the scheme is complete in all aspect
12:15and there's a very fundamental
12:16difference between the 2015 scheme and
12:19the 2026 scheme. Under the 2015 scheme,
12:22if department had information,
12:25then the assess was precluded from
12:28filing the declaration or you know
12:30opting for the scheme. Here department
12:34has information but they are still
12:35encouraging people to file come file the
12:38scheme and come clean. So there's a very
12:39fundamental difference under the old
12:42scheme and the new scheme which people
12:43need to be aware of you know because
12:45that will impact how we are interpreting
12:47the scheme as well.
12:52So what was the rational of the
12:54government that you know whom do we
12:56really want to protect whom we really
12:58want to give the benefit to right so the
13:01thought process was very clear that we
13:03don't want to make it a full-fledged
13:06uh you know disclosure scheme like it
13:07was in 2015 want to keep it very focused
13:11very specific to people who are small
13:13taxpayers
13:14and that is coming by way of the you
13:16know thresholds that are being given and
13:18typically Basically what happens is this
13:21scheme is really intended for someone
13:23who is a genuine taxpayer who has missed
13:26bonafide
13:28disclosing the income or disclosing the
13:30asset either out of ignorance or
13:32unawareness or probably lethargy. You
13:35know at times when you speak to the
13:36client they may say oh the account was
13:38closed long back we don't have the
13:40statement there's no one is responding
13:42you all sort of uh things sometimes
13:45genuine sometimes ingenuine
13:48what the scheme really wants to focus is
13:50the small genuine taxpayers rather than
13:52the perpetual offenders right so you'll
13:57have a lot of instances you know
13:59employees of you know MNC's they will be
14:01having an esop
14:03taxes do you live felt from their salary
14:05from 16 when the esops are being you
14:07know exercised but probably the
14:09disclosure may not have been made there
14:11could be students who would have gone
14:12out of a country open a bank account
14:14probably it may have a very nominal
14:16balance have come back to India you know
14:18people who are non-residents are coming
14:20back to India no so you will find lot of
14:23category of people who would have some
14:24of the other foreign assets but would
14:26have been missed and before the scheme
14:29the dilemma was always if I disclose
14:32this year and If I've not disclosed in
14:35the earlier year, what happens to the
14:37earlier year? You know, so there was
14:38always people may wanted genuinely to
14:40disclose come clean but the risk of you
14:44know opening up the earlier years was
14:45always somewhere the hitch that the
14:48people were having in really going going
14:50and you know disclosing
14:52and frankly so because practically what
14:54happens is department now has a lot of
14:57technology and they really compare your
14:58tax return from the previous tax return.
15:01If there's a substantial increase in the
15:02asset without a corresponding income,
15:04there's scrutiny notices, you know,
15:06asking for the source etc. So unlike
15:09couple of years back where it was very
15:10random inquiry, now they have a lot of
15:12data to really pinpoint and you know,
15:14focus upon. So there was always a
15:16dilemma that if I do now, what about the
15:18previous era and that always procluded a
15:21lot of people from not really going
15:22forward and you know this is an
15:24opportunity where all the past defaults
15:27can be regularized and you come clean.
15:32So the scheme basically focus has two
15:35distinctions.
15:36One is your undisclosed income and
15:39undisclosed asset.
15:42These are probably incomes which you
15:45have missed to you know report offer for
15:48tax
15:50and second category is undeclared asset.
15:53Undeclared asset is it is not relating
15:55you there's no tax avoidance that has
15:57happened in India. it was generally
15:59missed out to report. So they treated
16:02two very separately. In the latter
16:04category because there is no tax
16:06involved, they are more lenient in
16:08having a flat fee. In the former
16:10category where there is a tax involved,
16:12they are having a little more punitive
16:14uh taxes that are applicable
16:18and we will discuss this and this
16:19distinction will become important
16:21because of the thresh different
16:23thresholds and different monetary
16:25implications.
16:30This is a broad framework as it stands
16:33today. The main sections are coming out
16:35of the finance act. You have the fast DS
16:38rules 2026 and a CBD FAQ clarifying in a
16:42question answer formats few of the
16:44topics.
16:49Now let's let's look at what are the key
16:50days so we know what is the urgency when
16:53we need to prepare how we need to plan
16:54the work.
16:5631st March 26 is a cut off date that is
16:58a valuation date. So you need to value
17:01all your undisclosed income assets
17:03undeclared asset as on 31st March 2026.
17:07The scheme came into effect from 16th
17:09August 26 which means that you know this
17:11is live today. Uh you can file at any
17:14point of time. The last date of filing
17:16is 31st December 2026 and that's a very
17:20hard cut off unlikely this will be
17:22extended. So you know we need to be very
17:24careful that this is a very time bound
17:26scheme and particularly important is
17:29because being a calendar year end uh you
17:32know the western world is almost closed
17:34you know post Christmas you know the
17:35last 7 10 days you know you will really
17:37not find anyone answering you and if you
17:40are realizing at very late that you know
17:41you made a lot of information to be
17:43furnished in the form which may not be
17:45readily available and hence you need to
17:47plan in advance because if you are you
17:49know on 20 25th December you are you
17:51know getting up and you know requireing
17:53for some information. You may not really
17:55get any support from you know from the
17:57from the foreign countries because you
17:59know they will be typically closed and
18:01hence we really need to plan about this
18:03in a very timely affair and this is
18:05completely electronic. You don't have to
18:08do any physical filing nothing. It is
18:09completely electronic.
18:15So now the question is when can you make
18:18a declaration under the scheme?
18:21If you have not filed a tax return and
18:23there are any undisclosed income asset,
18:25undeclared asset that needs to be
18:27reported then you can very well go and
18:29file a declaration. You have filed a
18:32return but you have missed to report any
18:34you know income asset or if there's an
18:38assessment but this is a step
18:39assessment. You know in all scenarios
18:41you are really welcome to go and file
18:44under the scheme.
18:48The question is who can file who is an
18:50assess right they have given two limbs
18:54one is your resident under section six
18:57which will typically include all your
18:59ros everyone who is a resident you know
19:01who has always been a resident who was a
19:04resident is a resident you know so a
19:06resident today can very well file the
19:08scheme in relation to any income asset
19:11which were missed which were otherwise
19:12required to be reported or taxed
19:15there could be also a scenario where
19:18person today could be an RN or and a
19:20non-resident but it may have earned an
19:23income which relates to the year where
19:26he was a resident which otherwise would
19:28mean that this income was otherwise
19:30taxable in India or it would have
19:32acquired an asset which was otherwise
19:35required to be you know disclosed
19:36because it's undisclosed asset but when
19:38it was acquired it was he was a resident
19:41but being a NR or an RNR today does not
19:46prohibits a person from going and making
19:48a declaration. He can very well make and
19:50go and declaration
19:52for the asset or the income which he has
19:54acquired while he was a resident.
19:57So everyone can go and apply for the
19:59scheme.
20:01So what is important is the year in
20:04which the income arose or the asset was
20:06acquired whether I was a resident at
20:08that point of time my current essential
20:10status does not have a problem. I can
20:12very well go and file this.
20:17So if you look at just some example for
20:19example the NRI who is now a resident
20:23and ordinary resident. So he was in past
20:24a non-resident he has come back he has a
20:28resident today is a resident today he
20:30had opened account while he was overseas
20:33but missed to report it after he has
20:35become a resident. Can he go and file?
20:37Yes.
20:39A person who is now currently abroad
20:42right but had acquired some asset while
20:44he was a Indian resident tax resident
20:48even he can disclose. So is the case
20:50with salaried employees so is the case
20:52with students. So if you really look at
20:55practically any person who has miss to
20:58report offer for tax any income asset
21:02can really go today and come clean.
21:08Now here are the two very important
21:11terms that we need to be very careful
21:13about. Undisclosed asset outside India,
21:17undisclosed foreign income. What they
21:20say is undisclosed asset. It means an
21:23asset which is held in the name of the
21:25assesse
21:27or he is the beneficial owner
21:31and no explanation is available for the
21:34source of that asset or whatever
21:36explanation is given by the assess is
21:38not considered satisfactory by the
21:41assessing officer.
21:43So you need to either hold the asset or
21:47either you need to be the beneficial
21:48owner the of the asset and you are
21:50unable to explain the source or the
21:52source expension is not satisfactory
21:55then it is treated as an undisclosed
21:57asset located outside India
22:00and an undisclosed income is any income
22:02which is from a source located outside
22:04India which was otherwise chargeable to
22:06tax under the income tax act but was not
22:08offered to tax. So two is income taxable
22:13India not offered to tax. Second, first
22:16category is undisclosed asset which was
22:18acquired or held or is a beneficial
22:21owner but the source is not generation
22:30can be made visa v
22:34important is beneficial owner.
22:39Black Money Act itself has not defined
22:40who is a beneficial owner. But section
22:43139 income tax act under the explanation
22:45four they have defined a beneficial
22:47owner. What they says beneficial owner
22:51means an individual who has provided
22:55directly or indirectly consideration. I
22:57should have provided a consideration for
22:59the asset for the immediate use or the
23:02future benefit direct or indirect of
23:06himself or any other person.
23:08So person who has contributed the funds
23:12may not necessarily have the asset in
23:14his own name but if it's for his future
23:17benefit or for future benefit of someone
23:19else may still be regarded as a
23:20beneficial owner and hence just having
23:24the asset in name is not this is not the
23:26only condition that can treat you to be
23:28an having an undisclosed asset outside
23:30India even if the contribution was made
23:33directly indirectly it can still come
23:35within the sambit of undisclosed asset.
23:41Whether only definition of beneficial
23:43owner under income tax act can be
23:46considered or there can be other
23:47definitions because see beneficial owner
23:50the concept is prevalent in under many
23:51law you have beneficial owner you know
23:54like a UBO under the company's act you
23:56have under the PMLA there are various
23:58laws which will define beneficial owner
24:00for their own purposes
24:03whether can you say that okay black
24:05money act is talking to an income tax
24:07act And I will only look at the
24:08definition under the income tax act.
24:11Somewhere the circular which was issued
24:14in 2015 gives that impression. They
24:17recognize that okay PMLA could have a
24:19different definition but 139 has so and
24:22so definition and hence a person could
24:23be regarded as a beneficial owner. But
24:26there are also judicial precedents which
24:28say that we cannot be stuck to the
24:31contours of the definition of beneficial
24:32ownership that only if I satisfy
24:34condition one condition two then I
24:36become a beneficial owner because in the
24:37real world because we are dealing with a
24:39subject which is so fluid there will be
24:42ways and means and people will more
24:44creative than the tax maker than the
24:46professionals. So at times they may
24:49probably go beyond and really look at
24:51generally are you the beneficial owner
24:52even if you may not strictly fall within
24:55a definition of a beneficial owner under
24:56section 139 and that interpretation
24:59comes out of the black money act because
25:01where this is where the context requires
25:04otherwise you know and subject to then
25:07there are definitions. So they can
25:08probably try and use it to even capture
25:10situation where you may very strictly
25:12not fall within the controls of being a
25:15beneficial owner but you generally may
25:16be the beneficial owner.
25:24So now let's look at the two link never
25:29disclosed never taxed and for the
25:31throughout the presentation we'll call
25:33it undisclosed asset undisclosed income
25:37which means the source was not explained
25:40or was not satisfactory explained. What
25:43is the threshold? The threshold is not
25:46exceeding 1 cr. So your undisclosed
25:48asset plus your undisclosed income
25:51should not exceed another 1 cr only then
25:55you are eligible to go and file under
25:57this scheme and if you do so
26:01yeah
26:20Correct.
26:23Right. So we have covered it as a
26:25specific slide. So we'll take it up you
26:27know at that point of time. But yeah
26:28this a very genuine and you'll have a
26:30lot of practical questions. Bank account
26:31what happens esop what happens returning
26:34accounts what happens you know dormant
26:36security accounts what happens. So I've
26:38tried to cover a lot of case studies and
26:40you know questions. Not necessarily we
26:42may have answers for all but at least we
26:44may have some approach about you know
26:45how to look at it. So if it's an asset
26:48which is not disclosed not income which
26:50is not disclosed you have a threshold of
26:531 cr the tax is 30% penalty is 30%
26:56effective the cost is 60%.
26:59versus you have a undeclared asset which
27:03is a genuine source but missed to be
27:06reported
27:08but here you know we look at condition A
27:10and B very critically because there are
27:12some nuances which we'll cover as we
27:14move forward what they say is what is
27:17covered by an undeclared asset asset
27:20which was acquired when the person was a
27:23non-resident
27:25from an income which was not subject to
27:27tax in India
27:29So a non-resident acquired asset from
27:32his overseas income which was otherwise
27:34not taxable in India came back simply
27:37forgot to report
27:39or asset acquired from a income which
27:43was already taxed in India by Indian
27:45resident but missed to be reported in
27:48schedule F
27:50and we'll spend and we'll pause for a
27:52moment here to absorb this because
27:54there'll be a lot of questions which
27:56will come after on this slide itself.
28:01Undeclared asset the threshold is 5 cr.
28:04Why the higher threshold? Because there
28:06is no tax loss to the government. It was
28:08more a reporting error per se that was
28:11missed. So they have a higher threshold
28:13lower fee. They call it a fee not a
28:15penalty 1 lakh rupee and a flat 1 lakh
28:18rupee. You miss an asset of 1 cr 1 lakh.
28:21You miss asset of 3 cr 1 lakh. You miss
28:23an asset of 4 cr 99 lakh 1 lakh. Right.
28:28two distinctions undisclosed income
28:30undisclosed asset undeclared asset.
28:34Question is when I say undisclosed
28:36income you know suppose you would have
28:39um got say a rental income you would
28:41have a property outside India probably
28:44the source is not explained you got a
28:46rental income you had taken a loan to
28:48buy that property so you know you may
28:51got a say you could have got a rental
28:52income of say example 25 lakh rupees but
28:54there would be an interest expense of
28:56say 20 lakh rupee your net income is 5
28:58lakh rupees otherwise if you would have
29:00gone in a normal route offered it duly
29:02into India being uh Indian resident and
29:05you know global income becoming taxable
29:06in India you would have you know taken
29:0825 lakh took a 30% standard deduction
29:11you would have you know claimed uh
29:13mortgage expenses probably you would not
29:15have paid taxes or you would have paid
29:16some minimal taxes
29:19or could be a scenario where you would
29:20have say probably interest income you
29:22would have paid tax in the foreign
29:23country you would have tax in India you
29:26know you would have claimed a credit so
29:27effective cost would still be overall
29:29about 30% something in the foreign
29:31entity something in India
29:35But under the scheme and under the black
29:36money act any undisclosed income you
29:40don't get a deduction for any expense
29:42allowance or set off of losses you don't
29:44get any benefit of any taxes that you
29:47are paid in the foreign country. So that
29:49way it is really punitive
29:54probably far exceeding that is the law
29:57because you really don't get any set off
29:59you don't get you know you really don't
30:00have money you have income you don't
30:02have money to pay because you know you
30:03would already spent on interest etc but
30:06because it was not disclosed
30:09on time the cost becomes punitive
30:13and this is something you know we need
30:15to absorb and educate the client that
30:17what has happened has happen but if you
30:20continue there's going to be a recurring
30:22problem you know so it is come to an end
30:25come clean and you go and you know
30:27disclose it properly because when you're
30:29disclosing your normal return you get
30:30all the benefits you get a foreign tax
30:32credit you get everything so your
30:34effective tax cost may not be very
30:36significantly higher there could be some
30:37mismatches some leakages but still
30:39better than
30:48how this 1 cr and 5 crore limit is
30:50calculated right it is tested on an
30:54aggregate basis it is not I have
30:56interest income of 75 lakh I have
30:58dividend income of 75 lakh then you know
31:00I'll look at each source of income or
31:03each source of asset it is a cumulative
31:05limit so undisclosed income plus
31:08undisclosed asset is 1 crared asset is 5
31:11cr limit and here it is very important
31:14that even if you're crossing the ceiling
31:17by rupee 1 you may probably not be
31:20eligible under this scheme hence it's a
31:22very uh I would say put it that way it's
31:25a very strict threshold you need to be
31:28really mindful about when you are
31:30calculating and it is you know not only
31:33how you are calculating how you're
31:34calculating becomes important what
31:36exchange rate you are using becomes
31:37important you Because sometimes small
31:40minor rounding of errors could probably
31:42tilt you in or out of the scheme.
31:48And why as a professional it is very
31:50important for us to be very careful when
31:52we are advising and you know we are
31:53really filing under this scheme. There's
31:56no mechanism to withdraw or amend a
31:58declaration.
32:00whether can you file a revised
32:02declaration
32:04under the old uh law and the old scheme
32:08there was a clear embargo that you
32:11cannot file a a revised declaration or
32:14once you file a declaration you cannot
32:16then again file another declaration
32:18under this scheme it is silent but
32:21silence may not necessarily mean a yes
32:24so you know you don't want to end up in
32:25a situation where probably we have filed
32:28errorlessly and we realize a mistake
32:30Although within the timeline we file a
32:33revised declaration form and probably it
32:34may not be accepted. So hence when the
32:37first form is itself being filed we need
32:39to be very careful uh that you know
32:41everything is perfect before we really
32:44go and file the form
32:48and
32:50why uh it becomes a lot of professional
32:53u
32:55judgment and responsibility
32:59any tax that you are paying under the
33:00scheme is non-refundable. So if
33:03errorlessly if we have calculated a
33:05different number and we have paid a
33:07higher tax there is no mechanism to
33:09claim a refund of taxes. So the mistake
33:12can be very costly.
33:14If we have filed assuming we are covered
33:16by the scheme and subsequently it turns
33:18out we are not covered by the scheme.
33:20You are thrown out of the scheme all the
33:22immunity is lost and you are exposed to
33:24the regular BMA.
33:26So you know it has to be very careful
33:28and even clients need to be educated
33:30that this is a lot of professional work
33:31that is being involved. A lot of
33:33discretion lot of judgment has to be you
33:36know done by us. So you know we need to
33:38be very careful when we are investing.
33:42Let's look at some example. So assuming
33:45there is a undisclosed foreign bank
33:47account say 50 lakh rupee
33:50there is a foreign income which is you
33:52know undisclosed of 30 lakh. So you'll
33:54add both the undisclosed income and
33:57undisclosed asset. It is 80 lakh within
34:00the 1 cr threshold eligible under the
34:03scheme because it's undisclosed income
34:05undisclosed asset. Tax is at 30 + 30. So
34:09effectively you are paying a 60% tax. So
34:12assuming the total amount is 80 lakh you
34:14are paying almost 48 lakh rupees as tax
34:16and penalty.
34:22uh there is a mechanism which we'll be
34:24covering uh in a sub. They have defined
34:26how that calculation has to be done
34:28under the rule itself.
34:34Correct.
34:39Also, honestly, I was having
34:40conversation with other professors and
34:42at our office also. Uh people are at the
34:45moment in the advisory stage. No one has
34:47really filed it because there are lot of
34:49questions.
34:51There are lot of questions you know and
34:52people may want to honestly wait and
34:55watch be prepared but little wait and
34:57watch about you know what is happening
34:58is there some clarification coming by or
35:01what is the view in the industry that is
35:02being taken uh so probably people may
35:05not rush and file it because it's like a
35:07oneway street so you know you need to be
35:09careful uh it is urgent but it should
35:12not be in haste
35:17again see typically you you'll add both
35:20asset and income. So it's not one cr
35:21separately for asset, one cr separately
35:23for income. It is together when it comes
35:24to undisclosed part of it. You don't
35:27have to file a separate form. There's a
35:28single form. You can add as many line
35:31items as you want under the form and
35:33disclose everything in one go.
35:37Let's look at another example.
35:41Say you have undisclosed income of 50
35:43underscored 80 within the 1 cr because
35:46undisclosed undisclosed 1 cr applies you
35:49are eligible in risk.
35:52If you look at next example you have
35:53undisclosed income of 50 you have an
35:55undisclosed asset of 70 total is 1 cr 20
35:59because it is crossing the 1 cr
36:01threshold you are out of the scheme you
36:02are not eligible to risk.
36:05If you have multiple income multiple
36:07asset you aggregate everything. So
36:08income 1 plus income 2 is 60. Asset 1
36:11plus asset 2 is 30. Total is 90. Still
36:14within the 1 cr threshold, you are still
36:16eligible.
36:18You have undisclosed income of 110
36:21crosses 1 cr you are out. What if you
36:25have say income of 95 unders income and
36:27undisclosed asset of 95 and you have an
36:29undeclared asset of 3 cr 50. The 5 cr
36:32threshold and the 1 cr threshold. You
36:35don't aggregate it. These are two
36:36separate buckets. Bucket one not
36:39exceeding 1 cr tick you are eligible.
36:42Bucket two not exceeding 5 cr you are
36:45tick you are eligible. So you really
36:49need to the math categorize it into a
36:51very different basket apply the
36:53threshold to decide you are eligible or
36:55not.
37:00Now broadly until now we understood who
37:03is covered, who is eligible to file the
37:06declaration, what is the undisclosed
37:08asset, what is undisclosed income, what
37:10is the undeclared asset, what are the
37:12threshold, what are the tax cost
37:14involved. Now we really look it into the
37:17manner of how do we really value because
37:19everything is valued on 31st March 2026.
37:22How do you really compute is it our
37:24normal valuation? Let me understand if
37:26there says market value is a property
37:28cost is it something that or something
37:30different. So let's look at the
37:32valuation rule. The fundamental rule is
37:36the cost of acquisition or the open
37:38market price as on 31st March 26
37:40whichever is higher. So your cost
37:42becomes the minimum amount that you need
37:45to disclose. But that is not that you
37:48know you only need to disclose the cost.
37:49You need to really value it and cost or
37:52market value whichever is higher becomes
37:55the value for the purpose of eligibility
37:57becomes the value for the purpose of
37:59applicability of the tax and the
38:00penalty.
38:04And if you look there are a lot of asset
38:05class that could come you may have a
38:06property you may have a shares listed
38:08unlisted artwork gold jewelry lot of
38:11things.
38:14Do it need a valation report for all
38:16type of asset?
38:19Not really.
38:21Strictly not really. But we'll see you
38:24know whether that is seen or not. If
38:26suppose you have not have a formal
38:28valuation report, you can apply the
38:30index cost theory and work out. So
38:33assuming your cost is 100 and your index
38:37cost is say 220.
38:39Then for the purpose of fair market
38:41value it will be 220.
38:44Whether 220 is generally the fair value
38:46may not necessarily be but you have not
38:48opened the valation report so you do not
38:50know and hence you have an option to go
38:52and go within the indexed route
38:56where the challenge can come by
38:58otherwise the logical question would be
39:00why would I do a value I'll just apply
39:02an index cost anyways cost is a minimum
39:04indexation apply we look at what is
39:06benefit why even get the hes of the
39:08values but what happens is Under the
39:12rule, a AO can actually look at the
39:16valuation.
39:18He can question the valuation and if the
39:21valuation as per him is exceeding 20%.
39:24Then the value that you have declared
39:27under the scheme then it can amount to a
39:30misrepresentation suppression of fact
39:33which can throw you out of the scheme.
39:35So you may have all the check the boxes
39:38but probably on the valuation front if
39:40your valuation and the EOS valuation
39:42differ by more than 20%.
39:45Then you may be out of the scheme
39:49and hence it is very important that all
39:52the fields are given due importance due
39:54logic and documentation is maintained
39:56about why a particular number is entered
39:58in a particular field. Why the cost?
40:01What is index cost? What is a fair
40:03value? fair value has to be supplemented
40:05by a valuation report. So you need to be
40:07mindful that it is not a blanket given
40:11that indexation
40:13you need to really look at is it really
40:16materally different from the fair
40:17valuation more than 20% you could risk
40:21of being thrown out of the scheme.
40:34Okay.
40:46Lot of open questions. True. [snorts]
40:51The you know ideally if they would have
40:54not had that 20% variance threshold
40:56probably you know it would have been
40:57easier you know at least cost definitely
40:59they have taken care of they've also
41:01taken an index cost in some cases where
41:04the fair market value is very apparent
41:05maybe quoted shares fair market value is
41:07apparent you may take it for others it
41:09may not be easy how do you value a
41:11property you know you really get to a
41:13valueer how do you value unlisted shares
41:16and we'll see how it is done but there's
41:18a cost
41:20And what is the asset size that we are
41:22looking at it? It's a small text 1 cr 5
41:25cr the cost benefit analysis at times
41:28may not work in your favor.
41:35So a question is index cost may not be
41:38sacrosan because if the 20% variance is
41:41crossed you may be risking the
41:43eligibility under the scheme
41:46and the problem with the scheme once you
41:50are in there's no way out so you have
41:53disclosed all your undisclosed income
41:55earned asset department would definitely
41:57would be having the information but if
41:58not you yourself have given it on a
42:00platter filed all the forms given all
42:02the information and subsequently you
42:04realize you are thrown out of the scheme
42:06because of some technical default.
42:09Under the old scheme, there was a
42:12protection available that any
42:14information that you provide as a
42:16declarant under the scheme will not be
42:19used for against any other law or
42:22against the blackmail law itself except
42:24for living the 60% penalty 30 plus 30 uh
42:26penalty.
42:28There's no equivalent relaxation under
42:31this rule which means there's a risk if
42:35Genuinely someone has bonafideed
42:36disclosed you are out of the scheme. You
42:39may still be subject to the contours of
42:40the BMA because the information is
42:41readily available and you may probably
42:43not be able to argue not to use that
42:44information in good faith. So
42:48it's between devil and the deep sea.
42:55So see what happens is they have they
42:57have only mentioned that EO can adopt a
43:00valuation. So he may then approach a
43:02racial value and you know use it but
43:05frankly what I believe is see there will
43:07be a lot of taxpayers who may be you
43:09know using this methodology unless
43:11there's a doubt they may not really get
43:14into so much valuation because otherwise
43:16the values are not very significantly
43:18large see when it comes to undisclosed
43:20income as a 1 cr you know maximum cost
43:22or benefit that department is going to
43:24get is 60 lakh rupees right but where
43:27genuinely like example let's say example
43:28it's a gold you know if you have a which
43:30is outside India under the form you need
43:33to mention what is a gram of the gold
43:35right now there if you adopt a index
43:37cost the EO can simply say you have you
43:41know 100 grams gold approximately the
43:43market price is this you have disclosed
43:45a x price bas index cost there's an
43:47apparent mismatch he may not even really
43:49want need to get ahead but in contrast
43:52there could be say probably an artifact
43:54or a painting you how can you value it
43:57probably he may be okay if unless he has
44:00contrary information. So it is the time
44:02will tell how it will how they will be
44:04testing it but we need to be reasonably
44:06sure that you know see frankly
44:08commercially people would know what the
44:09fair value is motor and that's and if
44:12the index cost is too different then you
44:15may want to take a cost but if it is
44:17near about then you may take a
44:18judgmental call to say no fine even if a
44:20valution is done at a later date it may
44:21not be very significantly different
44:23right
44:25let's look at some example and your
44:28honesty there may not be answers you
44:29know There could be genuine issues here.
44:31Assuming you know if you have uh and
44:34I'll take the example of 400 becomes
44:36easier. Suppose there's an example of
44:37you have declared value of 400
44:41in your form as an undisclosed income
44:45department come back and say no the
44:46value is 480
44:49within the 20% threshold it may still be
44:52okay. Now the question is whether he I
44:55have paid all tax penalty on 400 value
44:5820% band is there he has come with the
45:01valation of 480. Now do I need to pay on
45:03480 or I'm okay to pay within the 400
45:07because there's a 20% variance
45:09available. So if you compare it with our
45:1350C or you know 56 to 10 where if
45:15there's a 10% uh difference they accept
45:18the valuation which the SS has quoted
45:21right here the variance is not expressly
45:24mentioned the way it is under the income
45:26tax law. What they say is that if there
45:28is a variance which is up to 20% it will
45:31not be treated as you know
45:33misrepresentation suppression of fact
45:36you know so and so forth. They are not
45:37said we'll accept it the value of the
45:39taxpayer but practically if you look at
45:42it there's a deadline I have to file the
45:44form by 31st December the payments will
45:47happen within maximum within 4 months
45:50right so you know effectively there's a
45:51very short window available where
45:53practically I don't think department
45:54will really look into valation at this
45:56stage they'll accept what is being
45:58disclosed subsequently if they find some
46:00leuna they may come back because a void
46:03declaration at any point of time can
46:05become void it's not necessarily within
46:07scheme period.
46:09Now assuming say you know one year later
46:11on they come back and tell me no the
46:12valuation is different there's no
46:14mechanism to pay because the mechanism
46:15to pay ended four months from the end of
46:17the scheme. So if 31st December is the
46:19last date within 4 months which will be
46:21you know understand May because the way
46:23it is calculated beyond 31st May I may
46:25not be able to pay under the scheme. So
46:26likelihood they may probably accept the
46:29variance but that is still an open
46:31issue.
46:33Let's look at another example.
46:36Suppose you have disclosed at a value of
46:38say 95 lakh and department comes back to
46:42say the value is say 1 cr 1 lakh you are
46:46within the 20% threshold but you have
46:49crossed the 1 cr threshold
46:51whether you are out of the scheme or in
46:53the scheme
46:56there's no no answer
46:59because the way they have worded I would
47:01believe it that I may still be within
47:03the scheme because I'm within the 20%
47:04variance threshold
47:06uh and it was my genuine belief that
47:08this is my valuation you and see no two
47:10valuer can give a same valuation even in
47:12your normal scenario if value a company
47:16you will have 10 valuers you will have
47:1711 values so there is no no basis that
47:20you know you can equate a value so this
47:22should be an acceptable proportion but
47:23yes there could be an issue
47:28you look at an example suppose you know
47:31uh take another example suppose you are
47:33a 450 and you are within the 20% band
47:37but you are crossing the limit or you
47:39are crossing the 20% band know so there
47:42could be lot of examples that can come
47:44by which can question whether you are in
47:47out of the scheme what is the tax that
47:49has to be paid and frankly there is no
47:52clear clarification available under the
47:54law but I believe so long you are within
47:56the 20% threshold you should be
47:58protected
48:04Now let's look at some asset classes
48:06which they have mentioned about you know
48:07how to uh how the valuation rules speak
48:10about it. foreign bank account they say
48:14you have to calculate all the deposits
48:16made until 31st March 2026
48:20excluding redeposited
48:22withdrawals and we'll look at it what
48:25really it means when we are taking a
48:26specific slide on foreign bank account
48:28for other asset class
48:32property jewelry artistic work is a
48:34higher of the cost or the fair value and
48:38if no valuation is obtained the index
48:40cost as we spoke earlier that is pretty
48:43much common for all the three asset
48:45classes
48:48there's a very pecular way of valuing
48:50the interest in a firm AOP or an LLP so
48:53which is your non you know company type
48:56assesses value of an interest
48:59what they say is you work out the net
49:02asset value using the methodology of you
49:05know our 11 methodology under income tax
49:08by and large which they have also
49:10uh we'll discuss when it comes we're
49:12discussing the unqued equity shares the
49:14adop of the same methodology typically
49:15means asset excluding asset classes
49:18which they have mentioned like jewelry
49:20artistic work shares etc reduce by
49:23liability other than share capital
49:25reserves and surplus provisions for
49:26unertain liabilities etc. So typically
49:29our 11 US sort of valuation you do it
49:31for the partnership firm
49:34you have worked out what is a net asset
49:35value. Now to the extent of your
49:39contribution of the capital. So to the
49:42extent of that it will be first that
49:45value will be allocated between all the
49:47partners bases the capital contribution
49:49that has been done and a resididerary
49:52amount of the net asset will be
49:54allocated to the partner bases the
49:57partnership deed or bases the
49:59constitutional documents which tell how
50:01the asset will be distributed in case of
50:03a dissolution. And if there is no
50:06express mechanism then there is of PSR.
50:09So there is a threerong approach that
50:12needs to be followed when you are
50:14valuing the firm AOP or an LLP.
50:18Unlike your equity share or unlike your
50:21other asset classes here you don't have
50:23an indexation benefit. So you really
50:26need to compute
50:28your cost your fair market value and
50:31then make a disclosure accordingly. You
50:33cannot rely on the index cost theory and
50:36here generally there could be a problem.
50:37No, why would a foreign entity where you
50:40may have a very minimal stake disclose
50:42or give you all this information? How do
50:44you really calculate? At times you may
50:46not even have the financial because you
50:47may be a 1 2% partner or you know
50:50interest owner in that and you may
50:52generally face problems.
50:58Next is a question of quoted shares and
51:01they have defined what do you mean by
51:03quoted shares. So simply being listed is
51:04not sufficient. They need certain
51:07criteras to be fulfilled that you know
51:10that stock exchange should be one where
51:12there's a meaningful transactions that
51:15are being carried forward $1 billion.
51:17There should be a minimum volume of
51:19trading that is happening. So it's not
51:20very skewed trading you know because out
51:22of India there could be exchanges which
51:24are very small you know. So they want to
51:26really look at quoted which are
51:27generally quoted generally publicly
51:29floated those entities because that
51:31represents a fair value.
51:33What they look at it is the cost or the
51:37market value is computed under if it is
51:40a you know a established securities
51:42market satisfying all the conditions
51:45then you look at what is a high and the
51:47low take an average on 31st March 26 and
51:49that is a value that you substitute as a
51:52fair market value. If there's no trading
51:53on 31st March, you take a trading day
51:56before. Adopt the same methodology for
51:58the quoted shares.
52:02For the uncqued shares, they look at
52:05cost or a formula based NV valuation
52:08which is akin to over 11 year valuation.
52:11All assets excluding the specified asset
52:13category where there is a separate
52:14mechanism like you know if if there are
52:16quoted shares in the company you again
52:18follow the quoted shares methodology
52:20substitute the value. So this property
52:22for the im property value you substitute
52:23the value. So all asset other than the
52:25specified class you consider you add the
52:29value fair value of the specified class
52:31of asset as computed as per this
52:33methodology.
52:35You know you the taxes are reduced from
52:38the asset so long it represents actual
52:40tax liability. If there's a refund claim
52:42then you know that is considered to be
52:43part of the asset. Reduce it by
52:45liability. So you reduce all the
52:46liability other than capital reserves
52:49and surplus. uh your you know contingent
52:51liabilities. Your excessive tax
52:52provision you know you cannot just
52:54artificially make a exorbitant tax
52:56provision to claim it as a deduction
52:58from a liability. It has to match with
53:00the tax liability as to the book profit
53:02and that is how you work out what is
53:04your net asset value divided by total
53:07equity value multiplied by the paid up
53:10equity value pertaining to your share
53:11and that is how you work out the net
53:14asset value or the fair market value of
53:16a uncqued equity share.
53:20And if information is generally not
53:21available or you know you are not able
53:24to get a valuation done you may adopt a
53:26indexation approach with the risk that
53:29we saw earlier.
53:34For other asset classes
53:36similar it is all cost market value
53:39indexation you know for unqued equity
53:41shares could be uh non-equity shares
53:43could be preference shares bond
53:45debenture securities etc and could be
53:47any other asset they have given a
53:49residue clause. So this is how they are
53:52valuing it.
53:59They have a special valuation rule for
54:02assets which are no longer as on 31st
54:04March 26. So whether you really need an
54:07asset to be in existence as on 31st
54:10March 26 to be eligible or required to
54:13file a declaration under the scheme the
54:15answer is no.
54:18If any point of time the officer comes
54:22to his notice that you had a undisclosed
54:24asset while you were a resident after
54:26the black money law was implemented.
54:29They may still charge you under the
54:30black money act no matter whether you
54:33hold the asset today or not. And hence
54:35even if there is no asset as 31st March
54:3726 but you are otherwise required to
54:40disclose or you know declare you may
54:42still be eligible to go and file under
54:44the scheme. And here what they consider
54:46is they consider the cost or the sale
54:50price whichever is higher if the asset
54:51was transferred.
54:53But if the transfer was without any
54:56consideration or for an inadequate
54:58consideration they fall back to the cost
55:00of the fair market value theory.
55:05This is generally to you know people
55:07because see this came in the budget
55:09people knew there's a disclosure scheme
55:10which is coming by. Some may you know
55:12some would have you know probably just
55:14sold off the asset before 31st March. So
55:16they want to capture all those
55:17situations so that there are no
55:19leakages.
55:21Here the question is can you fall back
55:23to the indexed cost as we saw in the
55:25fair market value. They are not
55:28specifically provided under the rule but
55:30if you really connect all the dots you
55:32know because what the rule says is you
55:34work out the fair market value fair
55:35market value it's defined under rule
55:37which also includes a proviso for
55:38indexation and I believe even indexed
55:41cost should work for a fair market value
55:44so long it is within the vance
55:46threshold.
55:50Now the challenging part is the bank
55:52account.
55:54See all other asset class are still
55:55simpler. You know the cost, you know the
55:58fair market value, you can determine the
56:00fair market value. Nothing. You still
56:01have the index cost to go ahead with.
56:04When it comes to a bank account, there's
56:05a very pecular way of calculating the
56:08value of the bank account. What they
56:10look at it is they calculate all the
56:14deposits
56:16from the date of opening of the bank
56:17account until 31st March. Mind you.
56:34So mind you this is not the closing bank
56:36balance. It has to be calculated in a
56:40defined manner. And what they are saying
56:42is we will look at all the credits all
56:45the deposits that are happening into the
56:47bank account.
56:49But see bank is very funible.
56:52You would have withdrawn cash. You would
56:53have deposited cash. You would have used
56:55the cash to you know buy an asset. You
56:58would have sold the asset. The money
56:59would have been credited. At the first
57:01instance they say took take all the
57:04deposits credited to the bank account.
57:07All the credits. Take all the credits to
57:08the bank account.
57:11Yeah. So you know you take all the
57:12deposits irrespective of the nature.
57:15Then we give a carve out. They say you
57:17know they will give a double counting
57:19relief because otherwise this becomes
57:21unworkable. So what they say is if you
57:25have made a withdrawal and if you're
57:27redepositing money in the bank account
57:29then you know they will eliminate the
57:32double counting.
57:35So they will take it only twice uh only
57:37once and not twice.
57:39Is it a blanket rule? any withdrawal and
57:42fair deposit you can directly eliminate
57:46I think no there has to be a nexus
57:48between your withdrawal and the deposit
57:51so if suppose you know you have done a
57:53withdrawal but probably you are a
57:55non-resident you know and you don't have
57:57a corresponding drawings and you have
57:59again made a deposit there could all be
58:01a question whether that withdrawal has
58:03an excess with the deposit so it is not
58:06a blanket that you know any withdrawal
58:08you minus you know and you consider as a
58:10part of the redeposit there has to be a
58:12nexus to it.
58:15If someone had taken a benefit under the
58:17black money uh window scheme in 2015
58:20then they take the balance after the
58:23disclosure. If you have disclosed X
58:25amount because there was similar
58:26methodology at that point of time then
58:28they take it from that day until today
58:3031st March 26
58:33there is no cushion for 20% variance
58:35here your other asset had a variance so
58:37here you need to be very accurate in
58:39terms of calculating the deposit in
58:41eliminating the deposit to really work
58:43out what really the undisclosed bank
58:46account is or undeclared bank account is
58:50practical problem I have opened 20 years
58:54back.
58:56What will I do?
59:00We may not have bank record. So old bank
59:04or a financial institution. Most of the
59:06foreign countries have a lot of
59:07limitations. They will not provide you a
59:09bank statement beyond a particular
59:11period of time. What do you really do?
59:15There's no guidance here.
59:18If you look at the old scheme, there was
59:22a guidance by way of a circular where
59:24they said that if you don't have a bank
59:27statement, right? And if you're able to
59:30have some document evidencing that you
59:31tried to approach, bank could not
59:33provide you because of limitations etc.
59:37They permitted
59:39to compute basis a best estimate basis
59:44the calculation for the purpose of the
59:46disclosure.
59:47But with a caveat
59:50if you had information and you did not
59:54disclose
59:56it will be out of the scheme. You
59:58disclose example 100 as a bank balance.
1:00:02Suppose later on somehow the information
1:00:04is available to the department or you
1:00:06know bank would extract and the actual
1:00:08balance is say 80 you have disclosed
1:00:11higher there's no refund live at it. If
1:00:15you have disclosed 100 and if sub only
1:00:17department has information has record is
1:00:20able to get record value is 120 you are
1:00:23faced with a repercussion of a faulty
1:00:26declaration you could be out of history.
1:00:29So this was a guidance available under
1:00:31the old circular but that is not
1:00:34available now. Whether we can borrow
1:00:36that we'll have to wait and watch
1:00:38whether you know they come by with a
1:00:40circular.
1:00:49Okay.
1:01:02So this we have as a specific example
1:01:04that you know if you had a bank account
1:01:06which was out of a genuine source you
1:01:08know so there is no doubt on the
1:01:10genuinity of the source you're able to
1:01:11explain this is not an undisclosed asset
1:01:14but I came back I forgot to report the
1:01:17interest income right so fine interest
1:01:20income is an undisclosed income will pay
1:01:2360% tax and you know face with the
1:01:25consequences but the bank account is a
1:01:29mixture of two things now
1:01:32income which was a general source income
1:01:34if you recolct the bucket two asset
1:01:36acquired while I was a non-resident out
1:01:38of income which was otherwise not
1:01:39taxable in India and but also includes
1:01:43an income which is increasing the bank
1:01:46balance which is otherwise taxable in
1:01:48India. So if you strictly go under the
1:01:51bucket two some is covered and some is
1:01:54not covered. How do you take tackle it?
1:01:58Again the old circular had a reference
1:02:01effectively they said that it was in the
1:02:04context of undisclosed income not in
1:02:06context of undeclared asset because at
1:02:08that point of time there was no concept
1:02:09of undeclared asset because this scheme
1:02:10was just introduced but undisclosed
1:02:12income they said effectively when we
1:02:15look at the foreign bank account what is
1:02:17undisclosed foreign bank account we will
1:02:19eliminate the incomes which were
1:02:21otherwise not taxable in India
1:02:23effectively resulting into the value
1:02:26being only at that pertains to an
1:02:27undisclosed income. But there's a
1:02:30practical problem here for an undeclared
1:02:31asset you may not be able to adopt the
1:02:33same methodology. So whether you know
1:02:35you are in or out because you
1:02:37technically not following the undeclared
1:02:39asset strict criteria of one and two
1:02:42non-resident and resident
1:02:44but at the same time going by the
1:02:46intention of the scheme I have already
1:02:48paid on my undisclosed income the tax
1:02:50whether I should be out.
1:02:52It's a gray area but I believe they
1:02:54should accept because otherwise it will
1:02:56not work the scheme itself not work
1:02:58because your asset if you have an
1:03:00undisclosed income there'll be always
1:03:02some portion of the asset which is out
1:03:04of an income which was otherwise taxable
1:03:05in India. I'm not speaking of the income
1:03:08which is you know otherwise you know
1:03:10earned you know which was generally
1:03:11taxed you have normal scenarios dividend
1:03:12income your esop you have a sal you have
1:03:15a shares that you have got as an
1:03:17employee duly taxed in salary income 3
1:03:20days has been done you miss to report
1:03:22probably the dividend income
1:03:25now it's again and you know generally
1:03:28what happens dividend are reinvested or
1:03:30they simply lying in the bank account
1:03:31they're used to purchase the shares what
1:03:33happens to those shares
1:03:36informally For department had one
1:03:38session uh on the black money act where
1:03:40a similar question was raised to the tax
1:03:42officer. Informally they have said that
1:03:44you know your div income will be
1:03:46undisclosed income and that could become
1:03:47an undisclosed undeclared asset but
1:03:49there is no formal formal yes or no but
1:03:52that is somehow they are intending to
1:03:54look at it.
1:03:59Correct.
1:04:02Right.
1:04:10Yes.
1:04:12Yes. But there it's only undeclared
1:04:14value. So they are computing the value
1:04:16of the asset. They're not taxing you on
1:04:18the income which was earned value or
1:04:20non.
1:04:23Okay.
1:04:25No see we are at the moment uh
1:04:28discussing how the bank account is
1:04:31valued. It is not a tax. taxation is
1:04:33your limb one or limb two.
1:04:36So for the purpose of calculating the 5
1:04:38cr threshold even the interest income
1:04:41which was not taxable in India while you
1:04:43were a non-resident will be considered
1:04:45to see the total of 5 cr whether you are
1:04:47you know exceeding the 5 cr value or not
1:04:49but when it comes to taxability of the
1:04:51undisclosed income it is not an
1:04:53undisclosed income because it's income
1:04:55was not taxable in India so there's a
1:04:57distinction between that
1:05:02Okay.
1:05:07Yeah.
1:05:11Sense. Yeah. Because ideally they should
1:05:15have
1:05:22see what happens is for undisposed
1:05:24income you know they logically even the
1:05:27black money act supposed to remove
1:05:29income which was not you know liable to
1:05:31tax in India. uh even you know the old
1:05:33circular supports it. So there's a very
1:05:35good case for it. undeclared asset there
1:05:38is no guidance and there was a special
1:05:40question asked to them that you know if
1:05:41the person was a non-resident can we
1:05:43just take the bank starting from the
1:05:44time he became a resident
1:05:47answer was negative
1:05:51that should have been the case that
1:05:53should have been the case I was unless I
1:05:55clarify under the circular that is now
1:05:57how the law read it and even in the Q&A
1:06:00which they had in the department they
1:06:01were still unwilling to budge on that
1:06:12But if you are an RO your global income
1:06:15is taxable.
1:06:19If you would have offered under a normal
1:06:22rule here or no
1:06:27uh
1:06:30in the it no item from there are two
1:06:31disposal. One is for the asset one is
1:06:33for the income. So asset you for a
1:06:36property you disclose to my mind is you
1:06:38disclose a cost of acquisition and you
1:06:40disclose whether you have earned any
1:06:41income out of it. So your income will
1:06:43become taxable under your normal ITR
1:06:45form and you get a credit you you can
1:06:48claim a mortgage expense standard
1:06:49deduction credit the competition
1:06:51mechanism flows through under this you
1:06:55don't get a deduction
1:06:59yes peak balance and interest income
1:07:00that you have out of it. Okay.
1:07:04The peak balance. Yes.
1:07:07They said they are flowing it from 2015
1:07:09scheme also. So they what they want to
1:07:11do is see honestly what has happened is
1:07:13when the 2015 scheme came they said give
1:07:16me total of everything and then remove
1:07:18which was not taxable. So in effect the
1:07:21effect was that you taxing only income
1:07:23which was otherwise taxable in India.
1:07:25That worked because it was undisclosed
1:07:26income. Now you are using the same
1:07:28methodology to calculate the undeclared
1:07:31asset where there's no tax outflow. But
1:07:33because of the weird way of adopting
1:07:36mechanically the same formula, you may
1:07:38probably not get covered within the FIC.
1:07:53No. So to the extent say example you
1:07:56disclose an income in 24 income in 25 so
1:07:59it's asset was so it is actually a
1:08:02disclose income and asset for 24 and 25
1:08:05right but when you acquire the asset
1:08:07whether you are able to prove the source
1:08:09if yes then again for say earlier period
1:08:12say 23 22 21 it is undeclared asset for
1:08:15those period the income you not offered
1:08:18to tax assuming you were a resident that
1:08:20is undisclosed income so just merely
1:08:22disclosing it in 24 or 25 will not
1:08:25absorb you of your previous default if
1:08:26any
1:08:34for undeclared asset.
1:08:38Yeah, they look at they still look at
1:08:41the entire valuation on 31st March 26.
1:08:46Yeah.
1:09:24No, so your im property right. So this
1:09:25is for a bank account property will
1:09:27value cost which is your total 5 cr in
1:09:30your example or market value is on 31st
1:09:32March 26. This is only a bank account.
1:09:35This is not property.
1:09:42Right.
1:09:49Right.
1:09:52Uh because you and you have disloc
1:09:55property
1:09:56possession. So there you know what
1:09:58happens is you may probably want to
1:10:01argue that I had to disclose a capital
1:10:03asset. If you really look at the
1:10:05language of the form there say other
1:10:06capital asset. Now whether advance was a
1:10:08capital asset
1:10:10so it's a mix
1:10:15I got a point I got a point so I'm
1:10:17telling you that once you have disclosed
1:10:18once is a property came into existence
1:10:20question was whether undisclo you know
1:10:22the advanced payment is it a right in an
1:10:24asset whether right in asset is an
1:10:26undisclosed capital asset
1:10:32>> property
1:10:34so it depends on the terms There are
1:10:36femas FEMA looks at it you know whether
1:10:38under concern is okay not okay whether
1:10:40you have a right you don't have a right
1:10:41and frankly there are no answers for
1:10:43that
1:10:50right
1:11:04we have covered IRS
1:11:17You want it?
1:11:28Correct.
1:11:30But what happens is out of that income
1:11:32if you have an asset income gets
1:11:35transformed to an asset an asset if it
1:11:37is coming to the notice of the officer
1:11:39this year it becomes the asset of this
1:11:41year.
1:11:45Correct.
1:11:47Correct.
1:11:50No. So then your obligation then you are
1:11:52in the undeclared asset category where
1:11:54the obligation started only after the
1:11:56black money act came into picture.
1:12:00Correct. But the Yeah. Correct.
1:12:06No the rule does not give you that
1:12:08exception.
1:12:10You may not be covered for your
1:12:12obligation starts after 2016 you know
1:12:15August 16 17 basically 1 July 15 but the
1:12:18way it is calculated they looking at
1:12:20from inside
1:12:26no no no number what happens is they can
1:12:29always say from 2016 until 26 you did
1:12:32not disclose an asset. Sorry.
1:12:36Huh? No.
1:12:39Yeah.
1:12:51No. So see what happens is your case is
1:12:54undeclared asset. It's not undisclosed
1:12:55asset. You will pay under one lakh
1:12:57rupee. You have computed you have filed
1:13:00the scheme. Subsequently they come back
1:13:01and they calculate it and if they say
1:13:03this more than 5 cr you are out of the
1:13:05scheme. You are out of the scheme.
1:13:07Normal black money provide because not
1:13:10an undisclosed asset there's no tax risk
1:13:12there's only a penalty risk of 10 lakh
1:13:14rupees per financial year for 10 years.
1:13:20Yeah.
1:13:54So you'll find there's a lot of question
1:13:55in case of an expatriate who is coming
1:13:57why should I offer my why should I
1:13:59disclose my bank account why should I
1:14:01expose my property
1:14:06so
1:14:09no so if You have to highlight. See
1:14:12ultimately you are saying Indian
1:14:14government will never get the
1:14:15information if you are under presumption
1:14:19and if it comes to notice and this is a
1:14:21risk beyond as a professional what you
1:14:22can do.
1:14:29No. So as a professor you may always
1:14:30want to say that you know is it better
1:14:32to you know go with the scheme because
1:14:34hey as you are delaying it you are
1:14:36increasing your value will keep on
1:14:37increasing of the asset in the year in
1:14:40which it is coming to the notice that
1:14:41year's value will be considered for the
1:14:43purpose of regular BMA. Say today your
1:14:45value is say you know 1 cr. So maybe
1:14:48five years down the line it's 3 cr you
1:14:50know your in the third year in the fifth
1:14:52year when you come you'll be paid a
1:14:53penalty on the three cr value you know.
1:14:55So it is you are just postponing the
1:14:57meter and probably at a higher cost
1:15:0760%.
1:15:10No, it's 90%. So total 120% effective.
1:15:28No, see at times what happens is your
1:15:30source would be genuine. Say you may
1:15:32have a bank account out of your overseas
1:15:34income was not taxable but you miss to
1:15:36report a interest income. You may have
1:15:38shares, you may div to that extent you
1:15:40are a
1:15:47correct
1:15:51yeah so the way this calculated is you
1:15:53will have undisclosed asset you will
1:15:55reduce the income which was earned while
1:15:58you were a non-resident by referring to
1:16:00section five of DMA and effectively what
1:16:03will be taxed is only the value which
1:16:05was in relation to the income which was
1:16:07taxable Otherwise in India principally
1:16:10yes concept in ways of way it works in
1:16:13computation you'll have to compute
1:16:14exclude and then disclose
1:16:23correct
1:16:28if the BM assessment is completed
1:16:39Correct.
1:16:42Correct.
1:16:45Right.
1:16:47No, because what happens is that is not
1:16:49a disclosure as envisage under the black
1:16:50money act. You need to do under section
1:16:52139 return which was not done. So you're
1:16:55still exposed to the BMA risk open
1:16:57although if the assessment is not done.
1:17:00It has not concluded. It may possibly go
1:17:02to a BMA where the assessment could
1:17:03happen. But you have an opportunity to
1:17:05come clean and you know close it out
1:17:07here. So your pending assessment is not
1:17:10an embargo for you going into this
1:17:12today,
1:17:17right?
1:17:20You never know because you generally
1:17:22never back from wing that the you know
1:17:25case is closed. They simply not reply.
1:17:27So you are always in the dark
1:17:30you know whether it will or it will not
1:17:34yeah
1:17:42zero balance account huh
1:17:48returning Indian basically
1:18:00So see then you will have to litigate to
1:18:02say that the penalty should not apply
1:18:03because there was genuinely there was no
1:18:06loss to the revenue. See at the lower
1:18:08level you may probably not be successful
1:18:10in a higher level possibly you may be
1:18:12able to convince to say that you know
1:18:13there was generally no loss. The entire
1:18:15intention see we have actually made
1:18:17black money more about form and
1:18:19reporting rather than understanding the
1:18:20real problem of black money. So you know
1:18:23people are more on the procedural
1:18:24defaults more on the compliance rather
1:18:26than really looking at it is there
1:18:27really an income which has escaped right
1:18:31but the way ground level realities are
1:18:33you are mechanically exposed you fight
1:18:35it out you know probably you may be
1:18:37favorable then
1:18:40sorry 20 lakhs yes so the if you are uh
1:18:44if you're out of BM will definitely not
1:18:48go under the skin but you have a natural
1:18:49immunity under the black min.
1:19:07So black the moment assessment is
1:19:08concluded you are out
1:19:11you can do you cannot you cannot offer
1:19:14this
1:19:50No, because you already discuss and it
1:19:51was not required otherwise.
1:19:54Yes.
1:20:08So if you look and there's a very
1:20:10classic common cases that come by she's
1:20:13a beneficiary not a beneficial owner
1:20:15because she has not contributed but she
1:20:17could be for convenience sake a joint
1:20:19holder into the bank account technically
1:20:22if you look at it she's under an
1:20:24obligation to report the asset under a
1:20:26as a beneficiary into the black money uh
1:20:28under the income tax return failing
1:20:30which under black money act the pro the
1:20:33penalty provisions can kick in whether
1:20:36she can take advantage under the scheme.
1:20:41We saw first slide I have to be a
1:20:43beneficial owner. We saw bucket two. I
1:20:47have acquired an asset out of
1:20:49contributions which were out of my
1:20:51income as a non-resident or out of
1:20:54income which was duly tax in India. She
1:20:56falls in none of the cases.
1:20:59So the problem today is your income tax
1:21:02return requires you as a beneficiary to
1:21:04disclose. There are penal consequences
1:21:06under the black money act for
1:21:07non-disclosure even as a beneficiary.
1:21:10But your scheme today falls short of
1:21:12covering that situation.
1:21:20There are actually very frankly uh it's
1:21:23it's a public dash but uh there are a
1:21:25lot of um it's it's not been a very
1:21:27great drafting because if you really
1:21:28look at the section the section itself
1:21:31is mentioned incorrect under the finance
1:21:33act they have given a reference to
1:21:34section 116 and 117 which otherwise are
1:21:36section 132 and 133. So there's a draft
1:21:39there are a lot of drafting errors
1:21:41probably they will realize it and
1:21:43hopefully they realize it that is only
1:21:45something that we can pray for.
1:21:49So I I think we may break for five
1:21:51minutes a bio break and then we may
1:21:53continue again you know post the session
1:21:56as I said you'll be leaving with more
1:21:57questions than you came in
1:22:04>> we are independent professional
1:22:05organization sir
1:23:38The session is yet to be completed. A
1:23:40tea is served outside. So the break is
1:23:42for just for 5 minutes.
1:40:18So yes, let's continue with our hot
1:40:20debate of bank account.
1:40:24They have given some examples to clarify
1:40:26how you calculate, how you look at the
1:40:29withdrawals, what if you purchase a
1:40:30asset, what if you you know reinvest And
1:40:33let's look at you know two three
1:40:34examples that they have given right. So
1:40:38>> yeah yeah I will share the presentation.
1:40:40So if you look at the history like since
1:40:43from 2010 there are all the deposits
1:40:46that are you know uh created to the bank
1:40:48account. There are some withdrawals and
1:40:50there have been again deposits. What
1:40:53they typically look at it is that the
1:40:55cash withdrawal and the cash deposit
1:40:58that is the exclusion that we are
1:41:00considering at this. So there are
1:41:01multiple one is for the redeposit. So
1:41:03redeposit is a cash redeposit withdrawal
1:41:06is a cash withdrawal right there's a
1:41:08separate exception for a uh purchase of
1:41:11a asset and on sale purchase of an
1:41:13asset. So assuming you know if you look
1:41:16cumulative balance right say in 2011 so
1:41:19first April 2010 1,000 so 1,000 will be
1:41:22calculated 2011 500 500 will be
1:41:24calculated then you withdraw 700 out of
1:41:27which you redeposited 500 mind you there
1:41:30has to be some excess so although there
1:41:33is a deposit of 500 you will not
1:41:35consider it for the purpose of
1:41:37calculating the threshold because it is
1:41:39a redeposit so you avoid a double count
1:41:41because you already counted the deposit
1:41:43earlier
1:41:45Subsequently they say another 500
1:41:46deposit. So now total deposit is 1,000
1:41:50which you have not considered but your
1:41:51withdrawal were only 700. So you will
1:41:54consider 300 as the deposit. Similarly
1:41:58you have deposit 2,500. You have again
1:42:00withdrawn 400. Your further deposit of
1:42:031,000 you'll remove 400. You'll only
1:42:05consider 600. That is how you will
1:42:08calculate the all the credits that are
1:42:10coming by. And then you know you work
1:42:12out what is the total value that is
1:42:14coming for looking at the threshold.
1:42:17And if you have disclosed anything under
1:42:20the past then you start from that
1:42:21particular date
1:42:25because bank account is such a funible
1:42:28asset you know there will be a lot of
1:42:29credits deposits withdrawal. So they
1:42:33are conscious about it. So they have you
1:42:36know given some rule so that there is no
1:42:37double counting of the same asset. So
1:42:39what they typically tell is that if
1:42:41there's a sale proceed of the asset that
1:42:44we are declaring or a bank account
1:42:46withdrawal which is used to buy another
1:42:49asset then you will not consider it
1:42:52while calculating the first asset. So
1:42:55which typically helps you to avoid the
1:42:57double counting. So we need to be
1:42:59careful that you know we cannot method
1:43:01uh you know mechanically take all the
1:43:02deposits. You'll take the deposit apply
1:43:05the rules to see if there's some
1:43:06excusion because of the redeposit. If
1:43:08there's an exclusion because you have
1:43:10purchased another asset. So let's look
1:43:12at an example.
1:43:15Assuming there was a house property say
1:43:17of 20 lakh rupee which was purchased in
1:43:192014. This is assume a undisclosed
1:43:22asset. You sold it for 25 lakh.
1:43:27You sold it say you know around in 2017.
1:43:30Correct? Remember the slide we said if
1:43:33the asset is no longer in existence as
1:43:35on 31st March 26 you look at it cost or
1:43:38sale price whichever is higher for
1:43:40calculating the value. So value of house
1:43:42property 1 will be 20 or 25 whichever is
1:43:45higher it will be 25 lakh rupee. Now
1:43:48this 25 lakh rupees is deposited in your
1:43:50bank account. So if you look there's a
1:43:52credit of 25 lakh in the bank account.
1:43:54You have a two asset house property bank
1:43:56account. For the purpose of house
1:43:58property it is 20 or 25 whichever is
1:43:59higher. But this has been deposit into
1:44:03the bank. So we'll reduce the 25 lakh
1:44:05which was deposited in the bank. So your
1:44:08house property one will become zero
1:44:10value. There will be a disclosure but it
1:44:12will be a zero value because it is now
1:44:15getting calculated in the credit of the
1:44:17bank account.
1:44:19Now assuming from that bank account on
1:44:22there could be some other deposit and
1:44:23you purchase another asset of 30 lakh
1:44:25rupee which you have not sold which is
1:44:27existing as on 31st March 2026 and the
1:44:30value of that asset is 50 lakh. It is an
1:44:33emerald property cost fair value
1:44:35whichever is higher. So the value of
1:44:38house property 2 will be 50 lakh rupee.
1:44:42So you had house property one you had
1:44:44bank account house one value zero bank
1:44:47account we park bank account you
1:44:49purchase another house property for 30
1:44:51lakh fair value 50 lakh fair value of 50
1:44:54lakh becomes for house property two
1:44:56house property out now question is of
1:44:58this bank account in this bank account
1:45:01assuming by way of all the credit your
1:45:04value is 70 lakh rupee
1:45:07right now 70 lakh will include probably
1:45:09the 25 lakh was credited on sale of
1:45:12House property one also but because it's
1:45:15excluded by way of house property one it
1:45:17will be considered as a part when you
1:45:19are calculating the bank account but out
1:45:21of that you have purchased a house
1:45:23property another of 30 lakh rupee you
1:45:25have already taken into consideration
1:45:27value of the house property separately
1:45:29so you will reduce that 30 lakh from the
1:45:3270 lakh so your bank balance will become
1:45:3440 lakh and your house property two
1:45:36value will be 50 lakh so that is how
1:45:40this is very plain vanilla example In
1:45:42real life it will become very
1:45:43complicated but as a plain vanilla the
1:45:45concept to explain is you look at a bank
1:45:49account if the asset is purchased you're
1:45:51valuing the asset separately you remove
1:45:52from the bank account so effectively
1:45:54your bank account should have only those
1:45:56value which are not counted twice.
1:46:02Yeah,
1:46:06correct.
1:46:12Correct.
1:46:14Right. Correct.
1:46:22Correct.
1:46:25Correct. No. So then what happens is
1:46:26when you calculate the bank account one
1:46:28like you reduce which was property which
1:46:31was purchased you will reduce which is
1:46:33transfer to another bank account. So
1:46:35there will be no duplication.
1:46:39Yeah.
1:46:51No see what will happen is first we are
1:46:53computing everything in dollars.
1:46:55So you know this is example for INR for
1:46:58easier purpose but otherwise what will
1:46:59happen is you would have purchased a
1:47:01house 45 $10,000 you would have sold it
1:47:04say for $15,000 $50,000 would be
1:47:06credited to the bank account right and
1:47:08so on so forth you will calculate it
1:47:09you'll come out everything in dollar
1:47:10first then you will apply the conversion
1:47:12rate as 31st March 26 to check whether
1:47:14the threshold estimate or not you will
1:47:16not do on asset by asset basis
1:47:2495.
1:47:30Huh? But what happens for the purpose of
1:47:32credit? So what will happen is now this
1:47:34is all we are speaking as undisclosed
1:47:35income. So effectively what they saying
1:47:37is key house property one is sold off
1:47:39but it was undisclosed asset. So just
1:47:41value is being captured in the bank
1:47:43account. Yeah. Yes.
1:47:51You're taxing the full sale value.
1:47:55No because you you will disclose house
1:47:57property one was undisclosed asset 20 25
1:48:00higher 25 you'll do a deduction of 25
1:48:03because this value is captured in the
1:48:04bank account effectively this all
1:48:06scenario of undisclosed income so
1:48:08effectively whatever is the value of
1:48:09that bank account you are anyway taxing
1:48:11it which effect taxes everything which
1:48:13was there
1:48:18now let's look at this another example
1:48:23You had a first example we saw you had
1:48:25an asset sold an asset trade to the bank
1:48:27account purchase another asset from the
1:48:30bank account how the conversion works or
1:48:32how the rule works.
1:48:35Now you look at it if you have an
1:48:36undisclosed income say of 70 lakh rupee
1:48:39out of which you have invested 60 lakh
1:48:42rupees into another foreign property
1:48:44that property is still not sold and the
1:48:47market value is 80 lakh rupee.
1:48:50Logically if you apply the earlier
1:48:53sequence you will say you'll arrive to
1:48:55okay there'll be no double counting 70
1:48:58lakh income you will reduce 60 because
1:48:59it's used to purchase an asset 60 80
1:49:02whichever is higher as per the
1:49:03mechanical rule and 80 lakh is the value
1:49:07which you will disclose as an
1:49:08undisclosed asset. Now the problem is
1:49:12the way the rule has been drafted. The
1:49:15drafting of the rule says that where a
1:49:17new asset has been acquired or made out
1:49:19of consideration received on account of
1:49:22transfer of an old asset or a withdrawal
1:49:24from a bank account. What if it is on
1:49:26account of a foreign income
1:49:29verbatim? There could have been an
1:49:30argument this is not covered but this
1:49:32example income tax itself has given it
1:49:35in the rule whereby they are indicating
1:49:38that even if it's an income which is
1:49:39used to purchase an asset the value will
1:49:42be captured in the asset so we'll reduce
1:49:44from the income and will not double
1:49:45count it. So this is an example which is
1:49:47there in the rule itself which gives
1:49:49that impression although the language of
1:49:51the rule may not support it but if you
1:49:53look at this should be the ideally the
1:49:55real intent. So if you there are a lot
1:49:56of drafting luna in the rules
1:49:58effectively somewhere they will be
1:50:01rational hopefully to look at it more
1:50:03pragmatically but this itself supports
1:50:06from the rule itself. So you know you
1:50:07don't even need a circular to support it
1:50:09in coming out of the illustration which
1:50:11department itself has
1:50:16correct
1:50:20say sometimes what if the account is if
1:50:22the income is not credit in the bank
1:50:24account then what happens
1:50:28so you got an income but you know you
1:50:30are say you got in cash and you are
1:50:32purchasing it if you strictly apply the
1:50:35rule it is only out of a bank account or
1:50:37of another asset. How do you give effect
1:50:39to that income?
1:50:41Logically you should because you cannot
1:50:42double count it because you're already
1:50:43capturing the value of the asset. So
1:50:45that is they have clarified an
1:50:46illustration but technically the rule is
1:50:48little sort of uh coming out on its own
1:50:54correct bank to bank the problem in
1:50:56because the moment there is a bank you
1:50:58are taking all the credit you are
1:50:59withdrawing it by way of the normal uh
1:51:01logic. This is will be a situation where
1:51:04you getting an income which is not
1:51:05routed to the bank problem otherwise the
1:51:08bank will take care of everything you
1:51:09know debit credit everything will take
1:51:10care
1:51:19if it's an undisclosed asset it is still
1:51:22chargeable to tax in the year in which
1:51:25assessing officer consider notice as
1:51:26undisclosed asset closure does not
1:51:32Let's look at it how the currency
1:51:34conversion works.
1:51:36So what they have said is that okay if
1:51:38it's a freely convertible currency for
1:51:40which a RBI reference rate is available
1:51:43take the RBI reference rate as on 31st
1:51:45March 26 31st March 26 holiday banking
1:51:48holiday in India. So we take 30th March
1:51:5026. These are the rates available on the
1:51:53RBI website for these currencies.
1:51:57What happens for currencies other than
1:51:59these currencies? Then what they say is
1:52:01they convert into a common dollar then
1:52:04use the RB reference to convert dollar
1:52:06into IR.
1:52:08Now which rate do you consider? So they
1:52:10say typically if there's a central bank
1:52:12in that country which has given a rate
1:52:14for a uh for their currency visa v or
1:52:16dollar take that rate. If the central
1:52:19bank has not given a rate then any rate
1:52:21with the bank of that country which is
1:52:24otherwise regulated has given a rate
1:52:26then you consider that. So that is how
1:52:28they have said but effectively they're
1:52:30saying ultimately you look at the RBA
1:52:32reference it directly or indirectly. So
1:52:35even if some other currency convert to a
1:52:36dollar and then apply this rate and if
1:52:38it is just freely convertible currency
1:52:39directly apply this rates
1:52:41be very careful not to use Google rates
1:52:44x rates normal rates go by what is a
1:52:48prescribed methodology yeah so you know
1:52:51important that we follow this
1:52:57now let's look at what is a procedural
1:52:59aspect to it you need to file form 1 2 3
1:53:024 one is basically is the first form
1:53:05where you'll disclose everything
1:53:07submitted to the income tax portal.
1:53:10Form two is
1:53:12a payment notice or advice by the
1:53:15department that they will say okay basis
1:53:17the information that you have furnished
1:53:19this is the value that you have we have
1:53:21computed please pay it you will make the
1:53:23payment make the filing in form three
1:53:27and department will finally issue you
1:53:29form four which acts like an immunity
1:53:31which will have all your annexures form
1:53:321 2 3 as an annexure and they'll give a
1:53:34form four which is a final proof that
1:53:36okay it has been admitted and immunity
1:53:38has been granted
1:53:40>> [clears throat]
1:53:41>> Be very careful. There are strict
1:53:43deadlines when it comes to payment. They
1:53:46have given some leeway for an extended
1:53:47payment with interest. But beyond that
1:53:50extended date, if you make the payment,
1:53:53then you are not eligible under scheme.
1:53:55You are out of it. So not only filing
1:53:57the form is important, ensuring the cash
1:53:59flow to pay the taxes is also equally
1:54:01important because otherwise you are in a
1:54:04situation where you have filed the form
1:54:05and then you're figuring out a way to
1:54:07arrange for the cash flow and you're not
1:54:08able to achieve within the extended
1:54:10period any which you are out of this.
1:54:15So what are the timelines? Form one you
1:54:18need to file by 31st December 26.
1:54:22Whenever you file the form one,
1:54:25one month from the end of that month in
1:54:27which you have filed the form,
1:54:29department will issue an order
1:54:30determining the amount which is payable.
1:54:34Within two months from the end of the
1:54:36month in which you receive this order,
1:54:38you have to make the payment. If you're
1:54:40unable to make the payment by then, you
1:54:42can extend it for further two months
1:54:44with 1% interest per month.
1:54:49Then you need to file form three within
1:54:52that extended period of four months to
1:54:54the government giving proof of the
1:54:56payments and in the month in which you
1:54:59file the form one month from the end of
1:55:01that they will issue you form four. So
1:55:03let's look at an example. Suppose you
1:55:05have filed form say on 15th September.
1:55:09Department will issue you form two
1:55:10within one month from the end of the
1:55:12month in which you have filed the form.
1:55:13So they can issue you latest by 31st
1:55:15October assuming they issue on 25th
1:55:18October. Then you have a two month
1:55:21deadline to make the payment. Two month
1:55:23from the end of the month in which you
1:55:24file the form. So you have filed the
1:55:26form in October uh you have received the
1:55:28form in October. So 31st October say 2
1:55:31months you can make the payment by 31st
1:55:33December without any interest.
1:55:35Suppose you're not able to make the
1:55:37payment then you can further extend it
1:55:39by 2 months. So you have to make the
1:55:41payment latest by 28th February 27. In
1:55:44this example
1:55:46with interest feeling which you will be
1:55:48out of the scheme assuming you make the
1:55:50payment within the extended timeline of
1:55:5228th February. You also need to file
1:55:55form three within the same deadline. So
1:55:57it is like if you're paying on the last
1:56:00day of 28th February, you'll have to
1:56:01file the form the same day. You don't
1:56:02have an extension for the filing of the
1:56:04form.
1:56:05And important is filing of the form
1:56:07because if you don't file the form even
1:56:09if you would have made a payment you may
1:56:11still be in the problem. Assuming you
1:56:14have filed the form by 28th fee
1:56:17within 1 month from the end of the month
1:56:19by 31st March form 4 will be issued to
1:56:23you which is your immunity center. So if
1:56:25you look at it 31st December as a
1:56:28deadline, your latest payment date is
1:56:31May 27
1:56:33and the latest immunity that you will
1:56:35get is by June 27 assuming you do
1:56:37everything on 31st December.
1:56:42Be careful filing on say 29th September
1:56:46and filing on 2nd October could make a
1:56:50difference of you know months you know.
1:56:52So you need to plan around that way.
1:56:55Not only interest but even when you want
1:56:56to file the forms you get an extended
1:56:58period to get the make the payment also
1:57:00without paying interest.
1:57:04Form one typically what information goes
1:57:06in is your basic information. Uh they
1:57:09ask you whether you are a non-resident.
1:57:10If you're non you need to disperse the
1:57:12you have to also give the passport
1:57:13copies
1:57:15details of your all asset income
1:57:16categorizing into various buckets that
1:57:18are there into the form working out what
1:57:20is the amount payable. Typical
1:57:22information if you look uh you know
1:57:24income or asset wise year in which you
1:57:27have earned the income, year of asset,
1:57:29country of location, name under which
1:57:32the asset was held which may not
1:57:34necessarily be your own name because you
1:57:36know you may still be a beneficial owner
1:57:38not holding the asset but be a
1:57:39beneficial owner. What was your
1:57:41essential status when you acquired that?
1:57:43Uh you know what is your cost? Index
1:57:46cost if any valuation if any. If you're
1:57:48doing a valuation need to enclose a
1:57:49valuation report for the bank account,
1:57:51you need to you know enclose the working
1:57:53because if you you'll have to give first
1:57:55all the information about all the
1:57:57credit. Now you may give all the credit
1:57:59but basis the rule your fair market
1:58:01value could be lower than the aggregate
1:58:03of all the deposits. So you may disclose
1:58:05a fair market value which is different
1:58:06from all the credit. At that point of
1:58:08time you need to give a working to
1:58:10substantiate what that value is, how you
1:58:12have derived that value.
1:58:14Be careful. Certain assets you require
1:58:16to give granular information like gold
1:58:18you need to give purity, weight,
1:58:21diamonds, you need to give carrots
1:58:23you know and know that is how so it is
1:58:25important that you run through that form
1:58:26to see what all information is required.
1:58:29You need a bank account number. So you
1:58:31know you need to be very careful key
1:58:32okay that is all information that I may
1:58:34need and you start compiling that
1:58:36information because see computation is
1:58:38one part of it. Filling the form is also
1:58:39another. You cannot just focus on the
1:58:42conversion part without being in dark
1:58:44about what other factual information is
1:58:45required which may not necessarily
1:58:46affect your computation but will be
1:58:48required while you file the form.
1:58:54What is the effect of the declaration?
1:58:59Moment you declare a income or an asset
1:59:02under the scheme it is not included as a
1:59:05part of your total income under the
1:59:07income tax act or the black money act.
1:59:09So you get a complete immunity under the
1:59:12income tax act or the black money act.
1:59:14You don't get you get full immunity
1:59:16under penalties, tax, prosecution under
1:59:19the black money act. So it's a
1:59:20definitely a full full uh credit when it
1:59:23comes to income tax and black money act.
1:59:27So money laundering act. So what happens
1:59:29is they have only given that it will be
1:59:32income tax or black money act. All your
1:59:34other law like a FEMA like a company's
1:59:36act you know you don't get an immunity.
1:59:38You are exposed to the compounding, you
1:59:40are exposed to the penalty, prosecution
1:59:43provisions under the respective law.
1:59:48Other regulatory law. Yes. Yes.
1:59:51Yes. Yes. When it comes to PMLA, now
1:59:54what happens is PMLA uh it is little
1:59:57unclear. It what happens is PMLA treats
2:00:00a offense under the black money act as
2:00:03an offense scheduled offense for PMLA to
2:00:05apply. Moment I have got an immunity
2:00:08under the black money act whether it
2:00:10continues to remain a scheduled offense
2:00:13for invocation for PMLA possibly no old
2:00:16law there was an express clarification
2:00:17to that effect that you know once you
2:00:19have opted under that scheme it is not a
2:00:22scheduled offense PMLA should not apply
2:00:24I believe similar should work with this
2:00:25case also
2:00:28fema will continue FEMA will continue
2:00:30act will continue any other regulatory
2:00:31law
2:00:40Yeah. So yeah under the old scheme they
2:00:42had given an immunity from companies act
2:00:43they g immunity from femma they had
2:00:46given immunity income tax wealth tax and
2:00:49one more law five laws they had given uh
2:00:51I think customs yeah f they given an
2:00:53immunity your it is restricted to income
2:00:55tax and BMA
2:00:57what you give up by going into the
2:00:59scheme you cannot file any rectification
2:01:02revision application saying that now I
2:01:03have disclosed under black money act you
2:01:05know allowed me for a rectifications
2:01:07applications which are pending or the
2:01:09appeals that are pending And you know I
2:01:11cannot take a reference over there. Any
2:01:13amount that I'm paying under the scheme
2:01:14is non-refundable. So the once the
2:01:17payment is out it is out. There's no
2:01:19mechanism to offset it. Claim a refund.
2:01:22You need to be careful about what you
2:01:23are getting what you are giving
2:01:27where the scheme does not apply if
2:01:29there's a PMLA proceedings which has
2:01:31been initiated or pending for completed
2:01:34black money act assessments. So if the
2:01:36black money act proceedings are ongoing,
2:01:40the assessments are ongoing, then you
2:01:42can still file a declaration and the
2:01:43assessing officer will take into account
2:01:45the declaration that you have filed. But
2:01:47for proceedings which are completed, you
2:01:50cannot go under this.
2:01:52If at any point of time it comes to the
2:01:55notice that there was any material
2:01:57particular which was found to be false
2:02:00while you have made a declaration or you
2:02:02have violated any condition of the
2:02:03scheme then you will not be covered by
2:02:06the scheme and the immunity will not be
2:02:08granted. So you need to be very careful
2:02:10while you are going into the scheme that
2:02:12you are ensuring that there are no false
2:02:15declarations where the 20% variance
2:02:18threshold comes into picture because
2:02:19otherwise without absent that threshold
2:02:21someone will say there is a
2:02:23misrepresentation it's a suppression
2:02:24because you have suppressed a value but
2:02:26because of the 20% variation rule which
2:02:28has been allowed expressly it will not
2:02:30amount to a suppression.
2:02:33So a completed BMA assessment is out but
2:02:37a pending one you can still take that
2:02:39benefit.
2:02:41Now with this let's look at some case
2:02:44studies and open issues. We may not
2:02:46necessarily have all the answers that
2:02:48mean more problems than answers or
2:02:50solutions but let's understand what the
2:02:52nuances are involved and because as and
2:02:54when the clarification comes we can
2:02:55understand the implications thereof. I
2:02:58think bank account we spoke at length so
2:03:00I I'll skip that
2:03:03esops so esops you know typically what
2:03:05happens is a Indian employee getting es
2:03:07of your foreign company form 16 salary
2:03:10income is taxed when the isops are
2:03:12exercised you know so you know your
2:03:15major chunk of income is already tax
2:03:17offered to tax so it is not an
2:03:18undisclosed income the lacuna that can
2:03:21happen is non-disclosure of the foreign
2:03:23asset which you can fall within the
2:03:26undeclared asset threshold. You may be
2:03:29having a practical challenger because of
2:03:31the runup in the tech shares. You know,
2:03:32typically you get ESOPS. Technology
2:03:34companies are more forefront to give
2:03:36ESOPS because of run up in the share
2:03:38price. Your 31st March valuation may
2:03:40probably become a challenge to you for
2:03:43the 5 crore threshold.
2:03:50Even for the foreign company esops, the
2:03:52Indian subsidiary considers the salary
2:03:56income on account of the foreign esops
2:03:57exercise of its parent company and they
2:04:00do a TDS. Yeah.
2:04:06Uh similarly if you have some property
2:04:08you know then we discuss at length cost
2:04:11fair market value you do it right.
2:04:16IAS are a typical problem. So typically
2:04:19what happens is in the host country some
2:04:22type of IRA are taxable only on
2:04:24withdrawal basis but when it comes to
2:04:27Indian income tax it could still become
2:04:28taxable on a year-on-year basis on a
2:04:30acral basis unless you have exercised
2:04:33the option on earth section 89A form
2:04:3721A. So if you have not exercised it
2:04:40then you are covered by the normal
2:04:41provisions of the law where the income
2:04:43is taxable on a year-on-year basis. To
2:04:45that extent there could be a risk of
2:04:46your undisclosed income and the
2:04:48consequences under the BMA but your IRA
2:04:51balances are typically on account of
2:04:53your employment income contribution by
2:04:54the employer self contribution. So you
2:04:56may be very able to prove that it's not
2:04:57an undisclosed asset. It could be an
2:05:00undis it could be a mix of undeclared
2:05:02asset and undisclosed income once you
2:05:03become a resident and accordingly you
2:05:05will have to disclose it.
2:05:08In case you have legitimately bought
2:05:10crypto out of Indian money sent through
2:05:14proper banking channels, it may be an
2:05:16undeclared asset rather than an
2:05:17undisclosed asset.
2:05:20BMA boke.
2:05:22Now let's look at this example. It's a
2:05:25very practical problem.
2:05:49So if you have information and if you
2:05:52want peace is better because we go on a
2:05:55one lakh limit otherwise you can always
2:05:57contest that the asset was disclosed but
2:05:59there was some error and you contest
2:06:01under the BMA and plead not to penalty.
2:06:03It's not automatic is a discretion. You
2:06:06may probably have a chance to succeed.
2:06:10Now this is a very practical problem. If
2:06:13a you remember we have bucket two
2:06:15undeclared asset two limb limb one asset
2:06:20acquired out of income which was
2:06:22otherwise not taxable in India while I
2:06:24was a non-resident or asset acquired by
2:06:28a resident from an income which was
2:06:30taxable in India. Now RNR RN does not
2:06:34fit in any of this criteria if RN
2:06:37buys an asset from his overseas income.
2:06:40So now let's look at an example. Person
2:06:42is outside India. He's coming back to
2:06:45India. Typically for two or three years
2:06:46he may be able to enjoy an RNO status
2:06:49assuming he has a capital gain while he
2:06:52was an RNO.
2:06:54He sold off the assets
2:06:57and the the shares capital was not
2:07:00taxable to India because income is not
2:07:02acuring arising in India for an RN for
2:07:04the foreign capital gain and he acquired
2:07:07say a property outside India out of that
2:07:09money
2:07:11and once he become a resident he missed
2:07:14to declare that im property outside
2:07:16India
2:07:18now whether there's an undeclared asset
2:07:21very strictly if you look at the two
2:07:23bucket it is either NR or R R that to
2:07:27from an income which was taxable in
2:07:28India which is not in the present case
2:07:30of RN.
2:07:31So then you are actually in a limbo
2:07:33because you are not otherwise covered
2:07:35within the strict
2:07:38definition of undeclared asset whether
2:07:41you take a beneficial view to say you
2:07:43know NR RN is or similar because what is
2:07:47principally is that income which was not
2:07:49taxable in India and used to acquire an
2:07:51asset. Can you read that into a
2:07:54non-resident
2:07:57you may probably support if you remember
2:07:58limb one and limb two we had a resident
2:08:00and a non-resident or club together
2:08:02category that you know even they can
2:08:04file it if it if they were resident
2:08:06earlier can you take that interpretation
2:08:07to say that department treat it to be
2:08:10similar for a particular uh definition
2:08:13then you know extend the same benefit
2:08:14because logical is the same or you go by
2:08:17a very strict interpretation say no I'm
2:08:19not covered by the scheme
2:08:21open question
2:08:23but the if you look practically so
2:08:26practically what would happen is the
2:08:28cost is 1 lakh rupee for a
2:08:29non-disclosure assuming it is only an
2:08:31undeclared asset you may possibly still
2:08:33be in a better position to argue that
2:08:35you know it was genuinely undeclared
2:08:37asset which I was otherwise covered
2:08:40within the parameters that the scheme
2:08:42had laid down because of technical
2:08:45reading it is not fitting into it so it
2:08:47is worth the one lakh risk probably and
2:08:51go ahead and still do it and then decide
2:08:54you know if you are able to succeed or
2:08:56not because even if not probably if the
2:08:58BM assessments are ongoing you may
2:08:59possibly want to try and argue that you
2:09:01know because of the contour of the
2:09:02scheme I could not but I wanted to so
2:09:04but time will tell how they are treating
2:09:07it.
2:09:10Another problem is what about a property
2:09:13which has been inherited or received as
2:09:15a gift.
2:09:18same problem not acquired out of Indian
2:09:21taxpayer money it may not be an
2:09:22undisclosed asset if you are able to
2:09:24prove the source so the source is not
2:09:26only the gift that you have received the
2:09:27source would also be pro if you're
2:09:28receiving it say from your relative that
2:09:30relative if it's a non-resident fine you
2:09:33know it's a genuine source is fine so
2:09:36then the problem is more of an
2:09:37undeclared asset rather than an
2:09:38undisclosed income again the same
2:09:41problem that we look at which was in the
2:09:43case of an RN
2:09:48Now can you do a midway? I have a
2:09:51undisclosed income of say 75 lakh and 50
2:09:54lakh total one 1 cr 25 25 is my
2:09:57undisclosed income which is above 1 cr
2:10:00threshold should I disclose only 75 and
2:10:02leave 50 lakh 75 lakh I save 60% penalty
2:10:08where that is possible
2:10:21No sir question is this only question of
2:10:24income. I have I have no other things. I
2:10:26have only undisclosed two undisclosed
2:10:28income 75 lakh rupee and 50 lakh rupee
2:10:33otherwise I'm out of the scheme because
2:10:34it's more than 1 cr. Can I say okay 75
2:10:38lakh I will disclose 50 lakh I will not
2:10:40disclose
2:10:4150 lakh I will face BMA consequences as
2:10:44and when it come but at least 75 is
2:10:46secure.
2:10:50The problem here is your old circular
2:10:54considered this situation to say that if
2:10:56you have CS3 asset you disclose two
2:10:59don't disclose one so two kill you will
2:11:01get an immunity one way you may not get
2:11:03an immunity that was under old scheme
2:11:05under old circular now if you look at
2:11:07this scheme and we go back to the
2:11:09discussion that we had what we were
2:11:11comparing the 2015 scheme with the 2026
2:11:14scheme 2015 was all inclusive everyone
2:11:18welcome 26 is a very restricted scheme
2:11:21focus for small taxpayer. So the
2:11:24intention of the government would is
2:11:25always that we want small taxpayer to
2:11:27come by you know if you look at the
2:11:30memorandum of you know the finance act
2:11:32intention was small taxpayer the scheme
2:11:34itself has the heading small taxpayer
2:11:38and you are giving a declaration that
2:11:40there is you know no suppression of fact
2:11:42no misrepresentation declaration is
2:11:44correct. So I believe that under the
2:11:48this scheme unless they give a
2:11:50clarificatory circular this may not
2:11:52work. You are either in or out of the
2:11:55scheme otherwise the 1 cr and 5 cr limit
2:11:57which the government intended to cover
2:11:59only particular set of taxpayers will go
2:12:01for a toss. So probably they may not
2:12:04accept if at a later date they come to
2:12:06know that their total income was
2:12:08exceeding 1 cr
2:12:13joint foreign bank account. uh you know
2:12:15we discussed offline but uh what happens
2:12:18is say a husband has a bank account you
2:12:21have uh you know let's look at two
2:12:23situations situation one where you know
2:12:26wife and husband both are having a joint
2:12:27bank account both have contributed funds
2:12:29to the bank account
2:12:32legitimate funds uh you know not
2:12:34undisclosed scenario undeclared asset
2:12:37how do you calculate the 5 cr limit do
2:12:39you calculate for both individually the
2:12:42all deposits whether made by husband or
2:12:44wife or you look at only your share
2:12:48when it comes to undisclosed income. If
2:12:50it were an undisclosed income, you could
2:12:53have possibly said that no undisclosed
2:12:54income would only be my income. But for
2:12:57undeclared asset, you don't have an
2:12:58express provision to do that
2:13:00bifurcation.
2:13:02Your earlier circular because it dealt
2:13:05with undisclosed income. Consider that
2:13:07scenario to say you know respective
2:13:09person will disclose for their
2:13:10respective share because eventually
2:13:13government is getting the tax which was
2:13:15legitimately due from both the taxpayer.
2:13:17Similar analogy can be applied if it is
2:13:19undisclosed income or undisclosed asset.
2:13:21But if it's an undeclared asset then
2:13:23there's a problem because you may not be
2:13:25able to apply that methodology because
2:13:26it is for undisclosed asset not an
2:13:28undeclared asset and undeclared asset
2:13:31has a strict rule about what is allowed
2:13:32as a withdraw as a deduction. practical
2:13:35problem. Look at another example. Wife
2:13:38has not contributed anything. She's only
2:13:41for a name sake a joint holder in the
2:13:43bank account. So if you look at it, is
2:13:45she a beneficial owner? If you look at
2:13:47the definition of 139, has she
2:13:49contributed the funds? No. Then is she a
2:13:53beneficial owner? No. Is she a
2:13:55beneficiary? Yes.
2:13:57But if you look at the overall
2:13:59architecture of the scheme, they are
2:14:01saying undisclosed income, undisclosed
2:14:03asset for a beneficial owner, undeclared
2:14:06asset which has been acquired while you
2:14:09are non from your money or out of
2:14:11resident out of your money in India.
2:14:14Wife has done nothing she's only a
2:14:16beneficiary. Whether it is forming part
2:14:19of undeclared asset issued ideally but
2:14:22because of the language the way they
2:14:23have drafted technically there could be
2:14:25a view that she may not get covered.
2:14:29So then it is a very strange situation.
2:14:32A person who has beneficial ownership
2:14:36who has
2:14:38a undeclared asset who has contributed
2:14:40you are given immunity but you are not
2:14:41given immunity probably to a person who
2:14:43just a namesake. I think there should
2:14:45some clarificatory circular should come
2:14:47by to solve this but until then there's
2:14:49a problem.
2:15:01Correct. Correct.
2:15:03Right. Intention is to cover.
2:15:07That's good to know. That's good to
2:15:08know. But you know what happens is
2:15:11unless there's a circular at a ground
2:15:13level.
2:15:18Hopefully not on 30th December.
2:15:24In a similar problems you will have if
2:15:26you are a signary to a bank account of a
2:15:28corporate entity. Say if you have say
2:15:31unlisted entity outside India you also
2:15:33need to disclose bank accounts where you
2:15:35are signary with which are not held in
2:15:38your own name. The same problem applies
2:15:41like of a beneficiary. So ideally there
2:15:43is no escapment of income because the
2:15:44income belongs to a foreign entity and
2:15:46if you have legitimately disclosed a
2:15:47foreign entity the luna is for
2:15:49non-disclosing the signary part of it
2:15:52which actually if you look at it there
2:15:54is no tax loss to the government whether
2:15:57it can be covered extend that logic of
2:15:59beneficiary if you go by the intention
2:16:01it should get covered but we wait and
2:16:04watch for the writing
2:16:07you may not be today today sir unless
2:16:10you take a risk of declaring ing it pay
2:16:121 lakh rupee at some point of time they
2:16:14can come back to say no you are not
2:16:16eligible 1 lakh rupees is lost or they
2:16:20come up with a circular or third option
2:16:22they accept it based on the intention
2:16:24even without a circular it's not
2:16:28it's a penalty that penalty is today
2:16:31also under the law 10 penalty therefore
2:16:35you save that
2:16:40now let's look at In this example
2:16:43suppose you had bought a share of 25
2:16:45lakh rupee undisclosed asset fair market
2:16:48value as on 31st March 26 is 75 lakh
2:16:51rupee
2:16:53went under the scheme paid the 60% tax
2:16:57now subsequently on October 26 you are
2:16:59selling it for 1 cr
2:17:02how you compute the capital gain
2:17:07is it taxable as a capital gain you are
2:17:10ro pay sharing sales of a foreign
2:17:13company. Pure income tax is income sable
2:17:16to tax in India. You'll pay a capital
2:17:19gain tax.
2:17:22What is the cost of acquisition? Whether
2:17:25you do 1 cr minus 25 or you will say I
2:17:29have already offered tax on 75 lakh
2:17:32rupee so I will do a 1 cr minus 75. If
2:17:35you do 1 cr minus 25 you are penalizing
2:17:38twice for the same default. And if you
2:17:40recall in one of the slide we said that
2:17:42what you get by going under the scheme
2:17:46the income or the asset that you have
2:17:48disclosed will not be considered to be
2:17:49part of the income under the income tax
2:17:51act or the black money act. So it's a
2:17:53good case to argue that 75 lakh should
2:17:56not become a income on my subsequent
2:17:58sale. Only the balance 1 cr and 25 lakh
2:18:01uh 75 lakh the difference of 25 lakh
2:18:03should alone become taxable considering
2:18:05that it was an income which was already
2:18:08disclosed under the scheme.
2:18:11What is the period of holding? Whether
2:18:14you relate back to the old acquisition
2:18:16of the asset or you look at the black
2:18:18money act declaration that has happened.
2:18:20Interestingly under the old circular
2:18:22they are expressly given that a period
2:18:24of holding will be counted from the date
2:18:25of disclosure of the asset but there is
2:18:28no equivalent disclosure as on date. So
2:18:32the period of holding may still be the
2:18:33old period of holding because the asset
2:18:35was still an old asset but you can
2:18:36always put up to say that the income
2:18:38should not become taxed twice because of
2:18:40the express rule that has been given.
2:18:50said that problem we had in the current
2:18:52tax because there was always a problem
2:18:53you know under construction property
2:18:55what do you look at the cost the period
2:18:57of holding of the asset you know when do
2:18:58you start indexation you start indexing
2:19:00from the slab wise payment that you make
2:19:01or you look at the date in which you
2:19:02acquired the asset that practical
2:19:05problem will arise but in spirit you
2:19:08should not tax the 50 lakh which I
2:19:09already uh
2:19:13very common I have filed an updated
2:19:15return I'll file an updated return it's
2:19:16a lower penalty Am I out of it?
2:19:21There was a view that
2:19:23black money act per se very strictly
2:19:25covers only section 139 returns 1 14 and
2:19:275 131 134 1395 does not cover an updated
2:19:31return. They have not amended the black
2:19:32money law to include an updated return.
2:19:35Technically penalty can still apply.
2:19:38There was a view that okay at least I
2:19:40have disclosed you know we'll fight out
2:19:41in the BMA assessment that you know I've
2:19:43already offered an updated return. You
2:19:45do not levy me again penalty. have come
2:19:46su motor etc etc and that is the
2:19:48argument people have thought made
2:19:51probably before the scheme done an
2:19:52updated everything
2:19:55after the scheme which has come by the
2:19:57department will always say that if
2:19:59suppose you don't take the advantage of
2:20:00the scheme they said you had an
2:20:02opportunity to go under the scheme and
2:20:04disclose
2:20:06technically to you are not eligible
2:20:07under 1398 because that is not covered
2:20:10it's only 131 4 and 5 that are covered
2:20:12so update is NH is not covered so it's
2:20:14just not a disclosure cash envisage or
2:20:17required under the black money and I
2:20:18will still leave you a penalty. So
2:20:20update and per say I think will be
2:20:22difficult at a lower level definitely to
2:20:24argue that disclosure has been made post
2:20:27this scheme all the more difficult at
2:20:29least for the people who are covered
2:20:30here for the people who are not covered
2:20:32you may have to fight out at a tribal to
2:20:34see that whatever has been lost actually
2:20:36has been recovered you know don't levy a
2:20:38penalty but that again the cost will be
2:20:40sent
2:21:22That's a problem
2:21:24because technically that was not correct
2:21:26to offer it in one particular year
2:21:28income pertaining to that period.
2:21:37Yeah.
2:21:44Yeah. Because upation if there is a
2:21:47reduction they don't accept it the way
2:21:49they have worked out.
2:21:52So to summarize I think we have short
2:21:54time but to quickly summarize
2:21:56[clears throat]
2:21:58there are there are a lot of questions
2:22:01some we may not have an answers some our
2:22:04heart would say this is an answer but
2:22:06not blessed time will tell how we go
2:22:09about it uh of course the thing would be
2:22:12to be prepared
2:22:15engage in conversation with the clients
2:22:16work out assess the damage compile the
2:22:20information but before finally finally
2:22:22plugging into the form you know we may
2:22:24probably wait until some clarification
2:22:25is received for at least a contentious
2:22:26issues so that we are taking a conscious
2:22:29call rather than a call in the dark.
2:22:32So this is sorry this is more like a
2:22:34checklist sort of that you know what you
2:22:36really need to do invenize all your
2:22:38assets all your income work out a u
2:22:41status
2:22:43obtain the fair value test the ceiling
2:22:44indexation versus fair valuation whether
2:22:47within the limit not the limit whe want
2:22:49to take a call on valuation where I want
2:22:50to take a index cost the bank account we
2:22:52spoke reconstructing the entire history
2:22:57compiling information documents required
2:22:58for form one checking are there you know
2:23:00embaros for you entering the scheme
2:23:03and effectively planning for the cash
2:23:04flow to make the payment as well.
2:23:07This is so far it connects to the black
2:23:10money act the income tax act. You will
2:23:12also have to look at it while you are
2:23:13advising that you know are there any
2:23:15other defaults which may require a
2:23:16compounding or a regularization say
2:23:18under FEMA the companies act or other
2:23:20regulatory laws. So you know it is a
2:23:23exercise a massive exercise while the on
2:23:25the face of it may look a simpler one
2:23:27but if you really get into it there are
2:23:29a lot of nuances that will be involved
2:23:31which will also have to educate the
2:23:32client that is not as straightforward
2:23:34you know as it sounds to be there'll be
2:23:36some calls will will have to be taken
2:23:38commercially in confidence with the
2:23:40client so that there's no fallback on us
2:23:42as a professional right with this I
2:23:46think we have sort the time so thank you
2:23:48thank you everyone
2:24:01But RBI the experience that I have they
2:24:03are still reasonable agencies. So they
2:24:06will be genuine. I mean they will look
2:24:09into genuiness.
2:24:13So
2:24:15you have to calculate everything in
2:24:17dollar terms as on 31st March you will
2:24:19convert it into
2:24:23yes
2:24:24because ultimately they all the way
2:24:26they're looking at it is they're looking
2:24:27at the value of the asset working out
2:24:29the total balance then applying the 31st
2:24:31mark because that is a value.
2:24:37Yeah. Yeah.
2:24:40Undeclared. Yeah. Yes.
2:25:52>> [clears throat]
2:25:58>> In the what second bucket what they're
2:26:00saying is acquisition of an asset by a
2:26:03nation from an income which was
2:26:04otherwise taxable in India. Now this
2:26:07income was otherwise not taxable because
2:26:09of past accumulation. If you look at
2:26:12under the old uh circular and the black
2:26:14money act uh under section five what
2:26:16they are saying is when they are
2:26:18discussing undisclosed asset or
2:26:21undisclosed income they are giving a
2:26:23benefit for the income which was
2:26:24otherwise not taxable right so when it
2:26:26comes to your situation you may possibly
2:26:29when you calculate undeclared you will
2:26:30not get an exception you may probably
2:26:32try to put up a point that you know I'm
2:26:34still within that intention I'm getting
2:26:37covered the way we set for RNO the way
2:26:39we said for gift way to be sh
2:26:41beneficiary and the what is the flip
2:26:43side the flip side is one lakh that you
2:26:45have paid so you'll have to assess that
2:26:51then then you will then you black money
2:26:54act itself you know then you have
2:26:56exception over there only why will then
2:26:57you will not go in the disc
2:27:00no because the moment no so if it's an
2:27:02income
2:27:04then so income tax will have a no
2:27:06problem because they will the
2:27:08consequence under the black money act
2:27:09for the penalty and the Black money act
2:27:10gives you an exception for the 20 lakh
2:27:12value of the asset. So they will not
2:27:14invoke they cannot invoke a section 43
2:27:16penalty under the black money act. So
2:27:18then what is the consequence? What is
2:27:19the other consequence? Nothing. I'll not
2:27:21go.
2:27:26Uh no
2:27:29practically if I if I'm getting a
2:27:30natural and a black why go in the hassle
2:27:32of in this game. Yeah.
2:27:39Sorry.
2:27:45Withdrawals.
2:27:49Huh?
2:27:51No. So see withdrawals could be for
2:27:53personal they are ignored. Only
2:27:56withdrawals which transform into an
2:27:57asset they are reduced. So if you have
2:27:59earned a credit of say salary income say
2:28:01one lakh for example you spend 80,000 on
2:28:04your personal expenses that is not
2:28:06allowed as a reduction from the banks.
2:28:07But you have acquired an asset for
2:28:0980,000 then that 80,000 is reduced from
2:28:11the bank balance because 80,000 will be
2:28:13considered as a part of the value of the
2:28:14another asset.
2:28:25No, you deposit in the bank account
2:28:27deposit.
2:28:32Yeah. So you go to undeclared asset
2:28:34because it's a legitimate money. Go to 5
2:28:37route and go with one lakh.
2:28:50Yeah. So you can do both unrest income
2:28:52and undeclared asset or undisclosed
2:28:54asset and undeclared income can go
2:28:56undeclared asset can go in the one form.
2:28:59Yeah. Sorry.
2:29:01Yeah.
2:29:10No,
2:29:13no.
2:29:20True
2:29:29little bit tax. You will not get benefit
2:29:30of the taxes paid in the foreign
2:29:32country. You will not get expensed. You
2:29:34will not get a loss.
2:29:37That's even in the black money act.
2:29:39That's the same
2:29:43still
2:29:45underscore income.
2:29:48No. If no net is if you have a 100
2:29:52capital gain and a 120 capital loss.
2:29:56So then there's no unused income. only
2:29:58if only one asset and loss then it is
2:30:01but yeah but then again what happens
2:30:03undisclosed asset cost of fair market
2:30:05value whichever is
2:30:08no even for tax for undis if it's
2:30:09undisclosed asset if I acquire an asset
2:30:12out of say illegitimate money say for
2:30:14100 I sold it for 80 our rule fair
2:30:17market value is cost or sale value
2:30:19whichever is higher so 100 becomes your
2:30:21undeclared unresourced income
2:30:36Right.
2:30:40No. So for that example, the example two
2:30:43that you know undisclosed income they
2:30:45said they reduce it to the extent it was
2:30:47transferred to by an asset. effect will
2:30:50count it only once because of the
2:30:52illustration that they have given under
2:30:53the rule.
2:30:56Thank you everyone.
2:30:59[applause]
2:31:02Yeah. Uh I'll go formally propose a vote
2:31:05of thanks.

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