Karnataka CA Body Suggests Black Money Act Penalty Reforms

The Karnataka State Chartered Accountants Association (KSCAA) has submitted a representation to the Union Minister of Finance and Corporate Affairs, Smt. Nirmala Sitharaman, dated June 28, 2025. The document highlights the difficulties taxpayers face due to the penal provisions, specifically Sections 42 and 43, of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (BMA). KSCAA notes that the current fixed penalty of ₹10 lakh is often disproportionate to the value of the undisclosed asset or income, leading to undue hardship for those who make honest mistakes or are unaware of complex disclosure requirements, such as employees with ESOPs. Challenges cited include low awareness of the BMA, a lack of distinction between intentional evasion and unintentional errors, and penalties being levied for the same asset across multiple years.

To address these concerns, KSCAA proposes several suggestions. These include introducing a ‘One-Time Compliance Window’ or an amnesty scheme for voluntary disclosures, similar to the Vivad se Viswas Scheme, and a mechanism akin to the ‘Updated Return’ under Section 139(8A) of the Income-tax Act. Further recommendations involve increasing the exemption threshold for foreign assets, implementing a proportional penalty structure based on asset value, and introducing a “reasonable cause” test to differentiate between deliberate evasion and genuine errors. KSCAA also suggests clarifying that penalties should not be applied retrospectively and simplifying reporting schedules. The association emphasizes that these amendments would ensure fair treatment for taxpayers and promote voluntary compliance.

Karnataka State
Chartered Accountants Association (R)

To,
Smt. Nirmala Sitharaman,
Hon. Union Minister of Finance and Corporate Affairs,
Government of India

Ref No: 017/2024-25 Date: Saturday, 28 June 2025

SUBJECT: REPRESENTATIONS AND SUGGESTIONS REGARDING THE PROVISIONS OF BLACK MONEY (UNDISCLOSED FOREIGN INCOME AND ASSETS) AND IMPOSITION OF TAX ACT, 2015

The Karnataka State Chartered Accountants Association (R) (in short ‘KSCAA’)), established in 1957 and registered under the Karnataka Societies Registration Act, has consistently strived to represent and safeguard the interests of Chartered Accountants across the state. Our objective is to engage constructively with regulatory authorities to address and resolve professional challenges encountered by our members and the broader business community.

Over the years, KSCAA has made several representations highlighting the concerns and difficulties faced by taxpayers and Chartered Accountants, along with pragmatic suggestions for resolution of these difficulties.

In this representation, we wish to bring to your attention certain hardships that arise due to the provisions of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (‘BMA’). In this representation, we would like to highlight the hardships that the taxpayers are facing due to penal provisions contained in sections 42 and 43 of the BMA. The current provisions, at times, results in undue hardship for taxpayers. The penalty levied, in many cases, is disproportionately high relative to the asset value and is levied for honest mistakes. Therefore, we have taken the liberty to outline few suggestions, aimed at facilitating a more effective and fair implementation of the penal provisions under the BMA, thereby granting relief in genuine cases.

1. Overview of Relevant Provisions of BMA

1.1. The Black Money Act was enacted by the Government of India in 2015 to curb tax evasion by targeting Undisclosed Foreign Income and Assets (‘UFIA’). The Act aims to identify and penalize individuals holding such undisclosed income and assets, thereby uncovering and addressing these sources of black money.

1.2. The Act empowers the authorities to impose stringent penalties and initiate criminal prosecution against offenders.

1.3. Section 42 of BMA imposes a penalty for failing to disclose foreign income or assets in the income tax return. It applies to Indian residents (ROR) who do not file a return despite having foreign assets or income. The penalty is a fixed amount of ₹10 lakh, regardless of the asset’s value. Prior to October 1, 2024, penalty was not levied in case of bank accounts with an aggregate balance not exceeding ₹5 lakh. Effective from October 1, 2024, the limit is increased to ₹20 lakh and now it applies to non-immovable assets.

Section 43 of BMA penalizes residents (ROR) who file a return but fail to provide details or provide inaccurate information about foreign assets (including financial interests) or foreign income. The penalty is ₹10 lakh, irrespective of the asset’s value.

2. Challenges faced by the Taxpayers and Professionals

Lack of Awareness and Education about BMA

2.1. Many taxpayers file returns independently without the assistance of professional tax advisors. This has also been one of the objectives of the Government that laws should be simpler so that the taxpayers comply with the tax laws by themselves. The awareness about the BMA is low, especially among those new to foreign asset ownership (e.g., employees receiving Employee Stock Option Plans (ESOPs) or individuals inheriting foreign assets).

2.2. Several foreign companies offer ESOPs to their employees in India. The perquisite value of such ESOPs is subject to taxation under the Income-tax Act, 1961 (the IT Act), and the employer is obligated to deduct tax at source (TDS) under Section 192 at the time of exercise. The next taxable event arises when shares are sold. Taxpayers often omit reporting foreign securities like ESOPs, mistakenly believing disclosure is only required upon sale. Additionally, individuals returning to India after working or studying abroad sometimes lose track of overseas financial assets, further complicating compliance.

2.3. Taxpayers often believe that paying taxes ensures compliance and therefore, the provisions of the Black Money Act do not apply to them. Thus, leading to non-disclosure of assets in the tax return. The Department’s outreach, a laudable initiative, has only been a recent phenomenon and may not resolve the hardship faced in earlier years.

Disproportionate Flat Penalty irrespective of Asset Value/Income

2.4. The current provision provides for a fixed amount of penalty of ₹10 lakh and does not scale with the value of the undisclosed or misreported foreign asset or income. Many a time, the penalty is grossly disproportionate to the relative value of the asset or income. This creates a significant financial burden, especially for taxpayers with low income or dormant foreign assets. It discourages voluntary compliance, as the penalty seems punitive rather than corrective.

Provisions Lack Clarity on Various Issues

2.5. The penal provisions lack clarity on various issues and have given rise to multiple interpretational issues. This is leading to hardship for the taxpayers. Some of these are highlighted below:

2.6. The provisions provide that the Assessing Officer may direct that such person shall pay, by way of penalty, a sum of ten lakh rupees. However, there is no provision parallel to section 273B of the IT Act, which provides relief from penalties for certain defaults under the IT Act if the taxpayer can prove that there was a “reasonable cause” for the failure. Thus, the authorities mandatorily levy the penalty and the provisions do not differentiate between intentional tax evasion and unintentional errors or ignorance. Even honest mistakes, such as forgetting to report a dormant foreign account or misunderstanding disclosure requirements, trigger the same ₹10 lakh penalty. Taxpayers, particularly senior citizens, NRIs returning to India, or those unaware of complex tax laws, face harsh penalties for minor oversights. This has led to widespread fear and anxiety among taxpayers, as the law does not provide leniency for bona fide errors.

2.7. The provisions do not adequately distinguish between black money (illicit wealth) and legitimate foreign assets held for genuine purposes, such as education, business, or retirement planning, from tax-suffered income.

2.8. The penalty of ₹10 lakh is being levied for each year separately for non-disclosure of the same asset in the ITR of the respective year.

2.9. While an exemption exists for foreign bank accounts with an aggregate balance not exceeding ₹5 lakh (increased to ₹20 lakh for non-immovable assets effective October 1, 2024), this threshold is still low, especially for NRIs or residents with legitimate foreign assets. Additionally, prior to October 1, 2024, the exemption does not cover other types of assets, like foreign shares or properties. Further, there is no specific provision for foreign incomes.

3. Suggestions for Consideration

In order to ensure equitable treatment of genuine taxpayers and to encourage voluntary compliance under the BMA, we respectfully submit the following suggestions. These recommendations aim to protect the interests of diligently taxpayers while maintaining the integrity of the law and revenue objectives.

Amnesty Scheme and provision for voluntary disclosures beyond the due date for original return

3.1. Introduce a ‘One-Time Compliance Window’ for taxpayers to disclose previously unreported foreign assets without penalties, encouraging voluntary disclosures and reducing litigation. The compliance window could be made applicable for taxpayers who have filed their return of income but inadvertently failed to report foreign assets or income, allowing them to revise or update their returns without attracting penalties under Section 42 of the BMA. The benefit may be given to the taxpayers, who have purchased foreign assets from taxable income or any other genuine source, like inheritance, gift from a relative, etc. This will ensure that there is no loss of revenue to the Government.

3.2. Introduce a scheme in line with Vivad se Viswas Scheme (under Income Tax) in cases where penalty u/s 42 & 43 of the BMA has already been levied. This will help to reduce pending litigation and also give relief to various small taxpayers.

3.3. We believe that a comprehensive One-time Amnesty Scheme would foster a culture of transparent compliance and enable taxpayers to rectify past omissions without fear of excessive penal consequences.

3.4. Further, it is suggested that a compliance mechanism or a remedial window, akin to the provisions under Section 139(8A) (Updated Return) of the IT Act, may be considered under the BMA. This would allow assessees to suo motu disclose any foreign income or asset, even where such disclosure does not result in additional tax outgo, thereby promoting voluntary compliance without fear of disproportionate penal consequences.

Increase Exemption Threshold

3.5. Increase the exemption threshold for the application of penalties under Sections 42 and 43 for all foreign assets to a more practical level, accounting for inflation and legitimate needs like education or remittances or ESOPs. The current limit of ₹20,00,000 may not reflect the realities of globally employed professionals, where the value of such assets, though legitimate, often exceeds this threshold due to compensation structures.

3.6. Also, it may be clarified that the exemption limit applies to other foreign assets apart from bank accounts for the period prior to October 1, 2024. Also, the exemption limit should be extended to foreign incomes.

Introduce Proportionality in Penalties

3.7. Revise the penalty structure under sections 42 and 43 of the BMA to ensure it is proportional to the value of the undisclosed foreign income or assets (UFIA). A graded penalty structure considering the following may be considered:

• Impose a percentage-based penalty linked to the value of the UFIA.
• Cap the maximum penalty so that it does not exceed the total value of the asset or income.
• Introduce a slab-based structure to differentiate between minor and major lapses.

3.8. Eliminate the practice of levying penalties for each year of non-disclosure in cases where the same asset continues to remain undisclosed over multiple years. A single penalty may be levied, unless willful concealment is established.

3.9. Clarify that the penal provisions under the BMA shall not be applied retrospectively, i.e., no penalties should be levied for periods prior to the effective commencement of the Act (i.e., before July 1, 2015). This would avoid unintended hardship and retrospective penalisation.

Introduce “reasonable cause” test

3.10. Introduce suitable amendments to the Act to recognize the “reasonable cause” test as in section 273B of the IT Act. Leniency may also be considered in cases where the taxes have already been duly paid under the IT Act.

Promote simplified reporting

3.11. The schedules in ITR dealing with the disclosure of foreign income and assets can be simplified for ease of compliance. Further guidance can be provided with respect to the reporting requirements thereunder to avoid confusion.

Immunity from penalty for substantial compliance

3.12. Where incomes and assets are duly disclosed for the purposes of taxation under the provisions of the IT Act, penalty proceedings under the BMA, may not be warranted.

3.13. It is respectfully submitted that in cases where the assessees have voluntarily disclosed foreign income or asset, and such disclosure has already been subject to tax or offered for taxation under the IT Act, invoking of penal provisions under the BMA may result in double jeopardy, which is contrary to the principles of natural justice.

We trust in your commitment to upholding the principles of fairness, justice, and efficient tax administration. Your intervention in this matter would not only alleviate the hardship faced by taxpayers but also reinforce confidence in the tax system and the government’s commitment to protecting the rights of taxpayers.

In light of the difficulties encountered, we sincerely urge your kind consideration of the above suggestions, which aim to strike a balance between compliance enforcement and taxpayer goodwill. Timely intervention on this matter will greatly benefit the taxpayer community and promote voluntary compliance in the spirit of cooperative tax administration.

Yours sincerely,

For Karnataka State Chartered Accountants Association ®

Cc to:

1. Shri Ravi Agarwal, Chairperson, The Central Board of Direct Taxes

2. Pankaj Choudhary, Hon’ble Minister of State, Finance.

3. Arvind Shrivastava, Hon’ble Revenue Secretary

4. Ganapati Bhat, PCCIT, Karnataka and Goa