Summary: The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, was enacted to address the issue of unreported foreign income and assets, in response to public frustration over scams and the lack of government action. The law applies to undisclosed foreign income and assets from the assessment year 2016-17 onwards. It mandates the disclosure of foreign assets and income that were not previously reported under the Income Tax Act, 1961, and imposes a 30% tax on these amounts. The Act also outlines how to calculate the fair market value of undisclosed assets such as bullion, immovable property, and shares. Furthermore, it includes severe penalties and prosecution for defaults, such as failure to file returns or provide accurate information about foreign assets. The penalties can range from a sum equal to three times the tax to imprisonment for up to 10 years for willful attempts to evade tax. There are specific provisions for disclosing foreign bank accounts and assets inherited from unexplained sources. Inquiries under the Act are triggered when these assets come to the attention of tax authorities. This law aims to deter the evasion of taxes on undisclosed foreign income and assets, and its implementation reflects a broader effort to combat corruption and financial secrecy.
History:
Series of scams by high level politicians were exposed during last fifteen years. People of India were watching with frustration that Government had no desire to act against scamsters. Then came out the list of Indian people holding black money in tax haven banks. Again Government was not acting. Advocate Mr. Ram Jethmalani appealed to the Supreme Court asking for action against Indians holding black money abroad. It was apparent that even Supreme Court was frustrated. Government was simply not acting. In these circumstances Mr. Narendra Modi made an election promise to bring back foreign black money. In May 2014, he won the elections with a significant majority. As a fulfillment of his election promise, Black Money Law has been passed. (Note: this is not a political observation. Events have a direct impact on Tax Laws.)
Overview of Black Money and Imposition of tax law
The Black Money (Undisclosed foreign income & assets) and Imposition of Tax Act, 2015, passed on 26.05.2015 & apply to whole of India with effect from Assessment year 2016-17.
Black Money refers to income that has not been reported to tax authorities or earned through illegal means, and it is generally subject to taxation under the law.
Sec 2(12) of Black Money Act 2015, Undisclosed foreign income & asset means total amount of undisclosed income of assesse from a source located outside India & the value of undisclosed asset located outside India.
Sec 2(2) of Black Money Act 2015, Assessee means
– A person resident in India in Previous Year as per sec 6 of Income Tax Act, or
– A person Non-Resident or Resident but Not Ordinary Resident in PY but who was resident in India either in the Previous year to which Undisclosed income relates or previous year in which Undisclosed asset located outside India was acquired.
Sec 3: Charging Section
Every assesse would be liable to tax @ 30% in respect of his undisclosed foreign income and asset of the PY. Undisclosed asset located outside India shall be charged to tax on its Value in the PY in which such asset comes to the notice of Assessing Officer.
Sec 3(2): Value of Undisclosed Assets (FMV as per Rule 3(1))
| Asset | Fair Market Value |
| Bullion, Jewellery, Precious stone or artistic work | Higher Of-
(i) Cost Of Acquisition (ii) NRV On Valuation Date |
| Quoted Shares and securities | Higher Of-
(i) Cost Of Acquisition (ii) Average of Lowest & Highest price on Valuation date in Established security market |
| Unquoted Equity Shares | Higher Of-
(i) Cost Of Acquisition (ii) (A+B-L/PE)*PV Where, A = Book value of all assets(other than Covered in B) Exclude TDS, Advance Tax in excess of income tax refund claimed & deferred expenditure shown in the asset side. B = FMV Of Bullion,jewellary, Precious stone, artistic work, shares, securities and immovable property as determined in the manner provided in this rule. L = Book value of liabilities, but not including following amounts such as:- (i) Paid-up capital in respect of equity shares (ii) Amount set apart for payment of dividends On preference shares and equity shares. (iii) Reserves and Surplus, by whatever name called, even if the resulting figure is negative, other than those set apart towards depreciation (iv) Provision For Taxation (v) Provisions made for unascertained liabilities (vi) Contingent liabilities other than arrears of Dividends payable in respect of cumulative preference shares; PE = total amount of paid up equity share capital as shown in the balancesheet PV = the paid up value of such equity shares. |
| Unquoted Shares or securities (Other than equity shares) | Higher Of-
(i) Cost Of Acquisition (ii) NRV on Valuation date Note : For this purpose, assesse may obtain valuation report from valuer recognized by foreign government. |
| Immovable Property | Higher Of-
(i) Cost Of Acquisition (ii) NRV On Valuation Date Note : For this purpose, assessee may obtain valuation report from valuer recognized by foreign government. |
| Bank Account | The Sum of All the deposit made since the date of opening the account; or where such account is already declared earlier & tax, penalty paid the sum of all deposit made since the date of such declaration.
Note: Any deposit made from withdrawal of account then such deposit shall not be considered. |
| Value Of Interest in Firm/LLP/AOP/BOI | Value Of Asset will be Net worth of Asset (A+B-L)
First distribute amongst partners/members in proportion in which they contributed capital & balance net worth in dissolution ratio or PSR in absence of dissolution ratio. |
| Value Of Any other asset | Higher Of :
(i) Cost Of Acquisition (ii) NRV On Valuation date |
Rule 3(2) : Asset transferred before Valuation date
Higher Of
- Cost Of Acquisition
- Sales Value
Note: If asset transferred without consideration or inadequate consideration then:
Higher Of
Cost Of Acquisition
- Cost Of Acquisition
- FMV On date of transfer
Rule 3(3) : Where a new asset is acquired out of consideration received on account of transfer of old asset or withdrawal from a bank account: In such case, the fair market value of the old asset or the bank account shall not be considered.
Sec 4: Scope of total undisclosed foreign income & asset – Total Undisclosed foreign income and asset of any previous year would be –
- Income from a source located outside India which has not been disclosed in the Return Of Income filed under Income tax act 1961 on or before due date u/s 139(1) or in the belated return of income u/s 139(4) or in the revised return of income u/s 139(5).
- Income from a source located outside India in respect of which a return is required to be filed u/s 139 of the income tax act 1961, but no return, belated return or revised return has been filed u/s 139(1)/(4)/(5) of that act.
- Value of any undisclosed asset located outside India.
Notes:
- Income from source outside India is already included in any assessment year or reassessment of income tax (u/s 29,43C,57,59,92C) then such income shall not be included in total undisclosed foreign income.
- Any Income or asset is included in undisclosed foreign income/asset under this act then such income or asset shall not be included in Income Tax Act.
Sec 5: Computation of total undisclosed foreign income and asset
- Expenditure or set-off of losses not be allowed against undisclosed foreign income.
- If any asset acquired out of any income which has already assessed earlier under income tax act(before black money act) or Black money act then such income shall be reduced.Example : Mr. Ashwin acquired share of foreign company for RS.10,00,000. He utilized RS.4,00,000 white money and RS.6,00,000 black money. Now Value of such asset as per rule 3(1) is RS.42,00,000 then Undisclosed asset will be RS.38,00,000.
- In Case Of Immovable property in above part (ii) following amount shall be reduced.
FMV of Asset * Income already disclosed (white money)
Total Cost of Asset
Penal Provisions:
| Default | Quantum of penalty |
| Where tax has been computed in relation to undisclosed foreign income and asset | In addition to tax, a sum equal to three times the tax so computed |
| Failure to furnish return in relation to foreign income and asset | INR 10 Lakhs |
| Failure to furnish information in the return of income or for furnishing inaccurate particulars about an asset located outside India | INR 10 Lakhs |
| Default in payment of tax arrear | Amount equal to the amount of tax arrears |
| Failure, without reasonable cause, to answer any question put to him by a tax authority or to sign any statement made by him | INR 50,000 to INR 2 lakh |
Prosecution Provisions:
| Offence | Punishment |
| Willful failure to furnish return in relation to foreign income and asset (including financial interest in any entity) before the expiry of the assessment year by a person, being a resident other than not ordinarily resident in India | Imprisonment: 6 months to 7 years (+) Fine |
| Willful failure to furnish in the return of income, any information about an asset (including financial interest in any entity) located outside India by a person, being a resident other than not ordinarily resident in India | Imprisonment: 6 months to 7 years (+) Fine |
| Willful attempt to evade any tax, penalty or interest chargeable or imposable under the Act by a person, being a resident other than not ordinarily resident in India | Imprisonment: 3 to 10 years (+) Fine |
| Willful attempt to evade payment of any tax, penalty or interest under the Act by any person | Rigorous Imprisonment: 3 months to 3 years (+) Fine, at the discretion of the court |
| Making false statement in verification or delivering an account of statement which is false knowingly | Rigorous Imprisonment: 6 months to 7 years (+) Fine |
| Abetting or inducing a person to make or deliver a false statement, account or declaration knowingly or to commit an offence u/s 51(1) | Rigorous Imprisonment: 6 months to 7 years (+) Fine |
FAQ’S Related to Black Money Act:
FAQ 1. A person has a foreign bank account in which undisclosed income has been deposited over several years. He has spent the money in the account over these years and now it has a balance of only $500. Does he need to pay tax on this $500 under the declaration?
Sol: Section 59 of the Act provides for declaration of an undisclosed asset and not income. In this case the Bank account is an undisclosed asset which may be declared. Tax on undisclosed asset is required to be paid on its fair market value. In case of a bank account the fair market value is the sum of all the deposits made in the account computed in accordance with Rule 3(1). Therefore, tax and penalty needs to be paid on such fair market value and not on the balance as on date.
FAQ 2. A person inherited a house property in 2003-04 from his father who is no more. Such property was acquired from unexplained sources of investment. The property was sold by the person in 2011-12. Does he need to declare such property under Chapter VI of the Act and if yes then, what will be the fair market value of such property for the purpose of declaration?
Sol: Since the property was from unexplained sources of investment the same may be declared under Chapter VI of the Act. However, the declaration in this case needs be made by the person who inherited the property in the capacity of legal representative of his father. The fair market value of the property in his case shall be higher of its cost of acquisition and the sale price as per Rule 3(2) of the Rules.
FAQ 3. A person acquired a house property in a foreign country during the year 2000-01 from unexplained sources of income. The property was sold in 2007-08 and the proceeds were deposited in a foreign bank account. Does he need to declare both the assets under Chapter VI of the Act and pay tax on both the assets?
Sol: The declaration may be made in respect of both the house property and the bank account at their fair market value. The fair market value of the house property shall be higher of its cost and the sale price, less amount deposited in bank account. If the cost price of the house property is higher the declarant will be required to pay tax and penalty on (cost price – sale price) of the house. If the sale price of the house property is higher the fair market value of the house property shall be nil as full amount was deposited in the bank account. The fair market value of the bank account shall be as determined under Rule 3(1) and tax and penalty shall be paid on this amount.
Further, it is advisable to declare all the undisclosed foreign assets even if the fair market value as computed in accordance with Rule 3 comes to nil. This may avoid initiation of any inquiry under the Act in the future in case such asset comes to the notice of the Assessing Officer.
FAQ 4. A person, while being a non-resident, earned foreign income, not chargeable to tax in India, (exempt income) which was deposited in a foreign bank account. The person became resident in India in F.Y. 2013-14 and since then only interest is being credited to the account. Such income including interest income has not been offered to tax in India. In such case what should be the disclosure under the tax compliance?
Sol: As stated the person was non-resident for the F.Y. 2012-13 and earlier years, and the foreign income for such years was not chargeable to tax in India for the F.Y. 2013-14 and subsequent years, while he is resident in India, the person’s global income is taxable in India. Accordingly, the declaration of foreign bank account in this case, which has been made partially out of undisclosed income chargeable to tax, may be made. In this case, the value of undisclosed foreign bank account shall be computed as per rule 3(1) of the Rules and a deduction as per section 5 of the Act shall be allowable. Therefore, the value of such account shall be the sum of all credits in the bank account as reduced by income not chargeable to tax in India (exempt income), which has been credited into such account. In this case, exempt income would be the foreign income deposited in the bank account upto the F.Y. 2012-13. Therefore, in effect the value of bank account in this case would be the sum of interest credits into the account since 1.04.2013.
FAQ 5. A person was a non-resident from F.Ys. 1996-97 to 2010-11 during which he was employed in a foreign country. The person received salary which was taxable in the foreign country and credited into a foreign bank account. The person also received contributions to his pension account from his employer. The person became a resident in India in F.Y. 2011-12. Whether the person is required to declare his pension account under the tax compliance?
Sol: As stated, the salary and pension received before F.Y. 2011-12 was not chargeable to tax in India. However, on or after 1-04-2011 when the person became resident in India any accretion to the pension account (in the form of interest, dividend, capital gain or any other sum) is chargeable to tax in India. Therefore, declaration of such account may be made under Chapter VI of the Act. The value of such account shall be the accretions to the account since 1-04-2011.
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