Understanding The Basics of Black Money (Undisclosed Foreign Income and Assets) And Imposition of Tax Act, 2015 (Black Money Act, 2015)
Black Money (Undisclosed Foreign Income and Assets) And Imposition of Tax Act, 2015, in short, Black Money Act (BMA) came into force from 01.04.2016 which seeks to tax Undisclosed Foreign Asset and Undisclosed Foreign Income at the rate of 30% alongwith Penalty at the rate of 90% apart from Interest and Prosecution on the Assessee. This article is just to understand the basics of the said Act.
As per Section 2(2) read with Section 2(10) of the Act, BMA applies to the person who is a ‘Resident’ in India as per Section 6 of Income Tax Act (In short, ITA), other than ‘not ordinarily resident’ as per the definition contained in Section 6(6) of the ITA.
As per amendment which came by Finance Act, 2019 with retrospective effect from 01.07.2015, if a person is a ‘not ordinarily resident’ but was a ‘resident’ under ITA in the year to which such undisclosed foreign income relates to or the undisclosed asset located outside India was acquired then also such person would be falling under the definition of an ‘Assessee’ under BMA.
UNDISCLOSED FOREIGN ASSET:
As per Section 2(11) read with Section 4(1) of BMA, it means:
(i) an asset located outside India, and
(ii) held by assessee in his name or such assessee is a beneficial owner or such assessee has financial interest in any entity, and
(iii) such assessee has no explanation about the source of investment in such asset or the explanation given is not satisfactory according to AO.
UNDISCLOSED FOREIGN INCOME:
As per Section 2(12) read with Section 4(1) of BMA, it means income of any previous year from a source outside India, which is not disclosed in the return of income that is furnished within the time specified in Explanation 2 to Section 139(1) or (4) or (5) of ITA or in respect of which the return of income is not filed within time specified under abovementioned provisions of ITA.
CHARGE OF TAX:
As per Section 3(1) of BMA, every assessment year commencing on or after 01.04.2016 there shall be charge of tax in respect of total undisclosed foreign income and undisclosed foreign asset of the previous year. The tax shall be charged at the rate of 30% of such undisclosed income and undisclosed asset.
Proviso to Section 3(1) of BMA states that the value of such undisclosed foreign asset, upon which tax shall be charged, would be the value in the previous year in which such asset comes to the notice of the Assessing Officer.
According to Section 3(2) of the BMA, the value of such foreign undisclosed asset upon which tax would be charged, means fair market value of an asset which would be determined in a manner as prescribed in Black Money Rules.
COMPUTATION OF TOTAL UNDISCLOSED FOREIGN INCOME AND ASSET:
As per Section 5(1)(i) of BMA, no deduction of any expenditure or any allowance or set off of any loss shall be allowed under BMA while making addition, even though the same are allowable under ITA.
According to Section 5(1)(ii)(a) & (b) of BMA, if any income is assessed to tax for any assessment year under ITA prior to commencement of BMA or any income which is assessable or assessed to tax for any assessment year under BMA then the same shall be reduced from the value of undisclosed foreign asset. But it will be only reduced after the assessee furnished evidence before the AO that the said foreign asset has been acquired from the income which is assessed or is assessable as aforesaid. Meaning thereby if undisclosed foreign income or asset is assessed under ITA before the commencement of BMA then such income or asset would not be taxed under BMA.
As per Section 4(2) of BMA, if any addition or disallowance made by Income Tax Department u/s 29 to 43C, 57 to 59 or 92C of ITA qua such foreign sourced income or India sourced income which is used to acquire foreign asset, then it would not be treated as undisclosed foreign income or asset. Section 4(3) states that undisclosed foreign income or asset assessed under BMA would not form part of total income under ITA.
As per Section 10 of BMA, AO after receiving any information from any authority under any law or on coming to any information to his notice, serve a notice on any person requiring him to produce any document or accounts or any evidence as require. The AO can also make full enquiry for the purpose of obtaining full information qua undisclosed foreign income and undisclosed foreign asset.
No order of assessment or reassessment shall be made after expiry of two years from the end of the financial year in which notice u/s 10(1) of the BMA was issued by the AO, as stated in Section 11 of BMA.
As per Section 83 of BMA, all information contained in any statement or return made or furnished under the ITA or obtained or collected for the purposes of ITA, may be used for the purposes of BMA.
Section 81 of BMA also states that no assessment, notice, summons or other proceedings under the provisions of BMA shall be invalid or shall be deemed to be invalid merely by reason of mistake, omission in such assessment, notice, summons or other proceedings, if such notice, assessment or other proceedings is in substance and according to the intent and purpose of the Act.
The tax shall be charged at the rate of 30% of such undisclosed foreign income and undisclosed foreign asset.
As per Section 40, if foreign income is not disclosed in return of income or if return is not filed, then interest shall be chargeable in accordance with Section 234A of ITA. If advance tax on such undisclosed foreign income is not paid then the interest shall be chargeable in accordance with Section 234B & 234C of ITA.
Penalty under Section 41 of the BMA wherein the tax has been computed u/s 10 of BMA will be a sum equal to three times (90%) the tax computed under that section.
Penalty u/s 42 BMA of Rs.10 Lacs can be imposed on a person who is a ‘Resident’ under ITA or was a ‘Resident’ in the year to which such foreign income or foreign asset relates, if such person fails to furnish return of income u/s 139(1) or its proviso for such year in which he at any time held such foreign income or foreign asset.
Penalty of Rs.10 lacs under Section 43 BMA on a person, who is a ‘Resident’ under ITA or was a ‘Resident’ in the year to which such foreign income or foreign asset relates, if he has failed to furnish any information or furnished inaccurate particulars of foreign income or foreign asset in the return filed u/s 139(1), (4), (5) of ITA of any previous year in which such foreign asset was held at any time during previous year.
Prosecution under Section 49 & 50 of BMA on a person, who is a ‘Resident’ under ITA or was a ‘Resident’ in the year to which such foreign income or foreign asset relates, for not furnishing return of income or not furnishing information or furnishing inaccurate particulars, as mentioned in penalty provisions of Section 42 & 43 of BMA. That person shall be punishable with a rigorous imprisonment for a term which shall not be less than six months but which may extend to seven years and with fine.
Prosecution under Section 51 of BMA on person, who is a ‘Resident’ under ITA or was a ‘Resident’ in the year to which such foreign income or foreign asset relates, who willfully attempts to evade tax, interest or penalty under BMA. That person shall be punishable with rigorous imprisonment for a term which shall not be less than three years but which may extend to ten years and with fine.
According to Section 59 to 61 of BMA, any person can make a declaration on or after the commencement of BMA but on or before the date as notified, in respect of any undisclosed asset outside India and acquired from income chargeable to tax under ITA for any assessment year prior to 01.04.2016.
The said undisclosed asset shall be chargeable to tax at the rate of 30% of value of such asset on the date of commencement of BMA.
In addition to the tax paid, penalty would also be levied at the rate of 100% of such tax.
OTHER RELEVANT PROVISIONS:
According to Section 2(15) of BMA, any definition not mentioned in BMA & its Rules then definition as mentioned in ITA & its Rules would follow.
Section 2(1) of BMA defined Appellate Tribunal as constituted under Section 252 of ITA.
Section 6 of BMA states that Tax Authorities under BMA shall be the Income Tax Authorities as specified in Section 116 of ITA.
Section 84 of BMA provides for the applicability of Section 90(1)(c) & (d), Section 90A(1)(c) & (d), Section 119, 133, 134, 135, 138, Chapter XV and Section 237, 240, 245, 280, 280A, 280B, 280D, 281, 281B and 284 of ITA with necessary modifications as if the said provisions refer to undisclosed foreign income and asset instead of to Income Tax.
As per Section 1(3) of BMA, BMA came into effect from 01.04.2016 i.e. from AY 2016-17. It means any undisclosed foreign income earned upto AY 2015-16 is not chargeable under BMA but can be brought to tax under ITA subject to provisions mentioned therein. Further, though Section 72(c) of BMA states that if any foreign asset is acquired prior to commencement of BMA and also no declaration is made under Section 59 of BMA then it shall be deemed that such asset is acquired in the year in which a notice under Section 10 is issued by the AO but it may mean that if such foreign asset is acquired prior to commencement of BMA but did not exist at the time of commencement of BMA then it may not be bought to tax under BMA but can be bought to tax under ITA subject to provisions contained therein, as such asset is not ‘held’ by the Assessee [Section 2(11) of BMA] at the time of commencement of BMA. So it can be argued that Section 72(c) applies to that foreign asset which is acquired prior to commencement of BMA and the assessee continues to hold it even after its commencement.