Summons from the investigation wings of the Income Tax (IT) and Enforcement Directorate (ED) wings have caused alarm bells to ring for people who think that they may have escaped notice after having paid their taxes.
As per a report published in the Economic Times (ET), thousands of people have received letters reminding them of a stern,stern, yet often ignored, provision of the statute that requires mandatory disclosure of all foreign assets like ownership in a company, properties, and accounts with overseas banks.
Nonetheless, many hold back such information due to their unfamiliarity with the law, laxity in the filing of tax returns, and fears that such declarations could trigger more queries from the tax office.
But, there is a stiff cost to such non-disclosures, as many are discovering: a penalty of ₹10 lakh a year under Black Money Act (BMA) - so, if a bank account was opened five years ago and has remained a 'secret' since then, the basic fine will be ₹50 lakh if the assessee is unable to convince tax authorities.
“About 3,500 notices have been issued in Mumbai itself. None of these names is in the Panama, Pandora, and HSBC leaks. But they have owned foreign assets which weren’t declared,” said a senior I-T official.
A person is exposed to penalty even if the overseas investment was out of tax-paid earnings and funds were transferred through banking channels using the Reserve Bank of India's liberalised remittance scheme which allows a resident to invest $250,000 a year abroad.
Some of the summons relate to remitting money that was transferred from another member of the family who has exhausted the individual LRS limit for the year. If such fund transfers are not established as a 'gift' to the family member, it could be construed as 'borrowing' - and therefore a violation - by the latter as LRS investments cannot be with borrowed money, the report said.
