“Understanding Taxation of Black Money: Income Tax Act 1961 provisions on undisclosed foreign income/assets, tax rates, FMV calculations, and penalties.”
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.
Charge
Rate of tax: Tax @ 30% in respect of his undisclosed foreign income and asset of the previous year. Undisclosed asset located outside India shall be charged to tax on its value in the previous year in which such asset comes to the notice of the Assessing Officer.
Value of an undisclosed asset:
| Asset | Fair market value |
| Bullion, jewellery or precious stone | Higher of –
(i) its cost of acquisition; and (ii) the price if sold in the open market on the valuation date. |
| Artistic work | Higher of –
(i) cost of acquisition; and (ii) the price (A) the average of the lowest and highest price of such shares and securities (B) where on the valuation date there is no trading average of the lowest and highest price of such shares and securities on any established securities market on a date immediately preceding the valuation date when such shares and securities were traded |
| Unquoted shares and securities | Higher of –
(i) Cost of acquisition; and (ii) the fair market value of unquoted equity shares = A + B- L / PE x PV Where, A= book value of all the assets (other than bullion, jewellery, precious stone, artistic work, shares, securities and immovable property) minus (i) any amount of income-tax paid, if any (After Adjusting Refund) (ii) any amount shown as asset which does not represent the value of any asset B= fair market value of bullion, jewellery, precious stone, artistic work, shares, securities and immovable property L = book value of liabilities, but not including
PE= total amount of paid up equity share capital PV= the paid up value of such equity shares |
| Unquoted share and security other than equity share in a company | Higher of,—
(i) its cost of acquisition; and (ii) the price that the share or security shall ordinarily fetch if sold in the open market |
| Immovable property | Higher of,—
(i) its cost of acquisition; and (ii) the price that the property shall ordinarily fetch if sold in the open market |
| An account with a bank | the sum of all the deposits made in the account with the bank since the date of opening of the account |
| Any other asset | Higher of –
(i) its cost of acquisition or the amount invested; and (ii) the price that the asset would fetch if sold in the open market |
FMV, in a case where a new asset is acquired out of consideration received on account of transfer of an old asset or withdrawal from a bank account: In such a case, the fair market value of the old asset or the bank account, as the case may be, determined in accordance with Rule, shall be reduced by the amount of the consideration invested in the new asset.
Computation of total undisclosed foreign income and asset
| A. Disallowance of expenditure and set-off of loss | No deduction in respect of any expenditure or allowance or set off of any loss would be allowed in computing the total undisclosed foreign income and asset of any previous year |
| B. Permissible deduction from value of undisclosed asset located outside India | Any income which has so far been assessed to tax for any assessment year |
| C. Permissible deduction from value of immovable property | If the deduction referred to in (B) above in respect of income which is assessable or has been assessed to tax is in relation to an immovable property, the quantum of deduction would be the amount which bears to the value of the asset as on the first day of the financial year |
Tax Management
Tax Authorities:
1. Income-tax authorities specified under section 116 of the Income-tax Act, 1961 would be the tax authorities for the purpose of this Act.
2. Jurisdiction of a tax authority: Tax authority having jurisdiction in respect of the area in which the assessee resides or carries on its business or has its principal place of business.
Powers:
1. Powers vested in a court under the Code of Civil Procedure, 1908
2. Inquiry and Investigation
3. Power to impound
4. Restrictions on power to impound
Proceedings before tax authorities to be judicial proceedings
Assessment:
- Service of Notice: On any person requiring him to produce, or cause to be produced, on the date to be specified, such accounts or documents or evidence.
- Service of further notices
- Making inquiry
- Passing an Assessment Order: Pass an order in writing assessing or reassessing the undisclosed foreign income and asset and determining the sum payable by the assessee.
- Best Judgement Assessment: After giving the assessee an opportunity of being heard
Time limit for completion of assessment and reassessment:
| Where notice u/s 10(1) is issued by the A.O. | 2 years from the end of the F.Y. in which notice is issued |
| In case where an order of fresh assessment in pursuance of an order passed u/s 18 setting aside or cancelling an assessment is to be passed | 2 years from the end of the F.Y. in which the order u/s 18 is received by the PC/Commissioner. |
| Where an assessment/ reassessment is made to give effect to any finding or direction contained in an appellate order or proceeding | 2 years from the end of the F.Y. in which such order is received by the PC/Commissioner |
Appeal:
| Particulars | Commissioner (Appeals) | Appellate Tribunal | High Court |
| Who can file an appeal | any person who –
(1) objects to the amount of tax on undisclosed foreign income and asset for which he is assessed by the Assessing Officer; or (2) denies his liability to be assessed under this Act; or (3) objects to any penalty imposed by the Assessing Officer; or (4) objects to a rectification order enhancing the assessment or reducing the refund; or (5) objects to an order refusing to allow the rectification claim made by the assessee. |
(1) Any assessee who is aggrieved by an order passed by the Commissioner (Appeals);
(2) Any assessee who is aggrieved by an order passed by the Principal Commissioner or Commissioner |
An appeal shall lie to the High Court from every order passed in appeal by the Appellate Tribunal, if the High Court is satisfied that the case involves a substantial question of law |
| Fees | INR 10,000 | INR 25,000 | As per the High Court Rules of the respective State/Court Fees Act, 1870. |
| Time period for filing appeal | 30 days of service of notice of demand relating to an assessment or penalty or in any other case, 30 days from the date on which the intimation of the order sought to be appealed against is served. | 60 days from the date on which the order sought to be appealed against is communicated to the assessee or the Principal Commissioner or the Commissioner | 120 days from the date on which the order appealed against is received by the Principal Chief Commissioner/ Chief Commissioner/ Principal Commissioner/ Commissioner/assessee |
| Extension | Permitted | Permitted | Permitted |
| Reasons for extension | The Commissioner (Appeals) should be satisfied that the appellant had sufficient cause for not presenting it within that period; and the delay in preferring the appeal does not exceed one year | The Appellate Tribunal should be satisfied that there was sufficient cause for not presenting it within that period; and the delay in filing the appeal does not exceed a period of one year. | The High Court should be satisfied that there was sufficient cause for not filing an appeal within that period. |
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 | Rigorous 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 | Rigorous 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 | Rigorous 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 |
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