Black money issue: Why taxing immovable assets held by Indians overseas is not easy
MUMBAI: Taxing overseas properties bought by Indians who stashed away money in Swiss banks and tax havens is tricky terrain in the framing of black money rules.
Compared to extracting tax and penalties on funds lying with offshore banks, there is no easy way to decide the tax amount on these immovable assets as tax authorities have figured out in the past one month.
Whether the property is an apartment in London, a mansion in Dubai or an orchard in Europe, the tax office has to arrive at the right valuation before imposing tax and penalty. “But how do you value these assets? Will it be on the basis self-declaration – where the income tax department accepts the value that owners submit? Or, can you ask them to get the properties valued by valuers abroad?
The department has to take a call on this… In fact, this is the tricky issue that has to be dealt with in finalising the rules,” a senior tax official told ET. Problems may crop up in either of the options. A self-declared valuation can be challenged by the tax office later, particularly if the number appears too low. This could delay matters, cause litigation and would not exactly be the way to sort out tax issues using a one-time settlement window.
Alternatively, the tax payer can be given the choice to hire the services of a foreign valuer. Here, the valuation could be phoney, but once a registered valuer presents a valuation certificate, it would be far more difficult for the department to question it.
The subject was discussed at the Central Board of Direct Taxes and the group that is framing the rules that will give Indian tax payers a chance to come clean by disclosing their foreign assets and closing the matter by coughing up 60% of the amount–30% tax and penalty of another 30%.
“There is a view among some within the central tax body that it may be simpler to follow a self-declaration method. We have to go by the current value and historical value,” said the person. According to two senior tax professionals, the rules are being awaited for clarity on the matter. Besides valuing immovable properties, people want to know whether tax has to be paid on money that has been spent in holidaying or at the casino.
“In all likelihood, the amount spent would not be taxed. So, if someone had parked $3 million in 2000 and has blown away a million, chances are he would be taxed on the balance amount in the bank account,” said another tax official.
If the rules are announced by the end of the month and the special window to declare foreign assets opens on July 1, taxes and penalties would have to be paid by December or January. One of the tax professionals said that individuals who have parked untaxed money by floating companies in the Caribbean tax haven of the British Virgin Islands (BVI), using the services of the Singapore agency Portcullis, are particularly interested in the rules.
“These set of people had submitted copies of their passports while opening bank accounts of offshore companies in which they are shareholders. They find themselves in a more vulnerable situation than those having accounts with HSBC Geneva or the Liechtenstein bank LGT,” he said.
