In 2015, the Indian government introduced the Undisclosed Foreign Income and Assets (Imposition of Tax) Bill, which subsequently became the Black Money Act, 2015. This legislation was enacted with the explicit purpose of addressing the issue of undisclosed funds held abroad. The Act brings forth a unique approach to the taxation of undisclosed foreign income and assets, accompanied by stringent penalties and the prospect of prosecution for non-compliance. This comprehensive article delves into the key features of the Act, the penalties associated with non-compliance, and the importance of adhering to proper reporting for Indian taxpayers possessing foreign assets.
Key Features of the Act
- Scope: The Black Money Act applies to all residents of India, with the exception of individuals who qualify as residents but not ordinarily residents (RNOR).
- Rate of Tax: Undisclosed foreign income and assets are subjected to a fixed tax rate of 30%, with no provisions for exemptions or deductions.
The Black Money Act is notably stringent in its penalties for non-compliance, covering various forms of violations as follows:
| Nature of Offense | Punishment |
| Wilful attempt to evade tax, penalty, or interest, chargeable or impossible under the proposed legislation | Rigorous imprisonment – 3 years to 10 years (with a fine) |
| Willful failure to furnish a return of income before the end of the relevant assessment year in respect of foreign income or assets (including financial interest in any entity) | Rigorous imprisonment – 6 months to 7 years (with a fine) |
| If a return of income is filed but the assessee fails to disclose foreign income or assets (including a financial interest in any entity) or furnishes inaccurate particulars of the same | Rigorous imprisonment – 6 months to 7 years (with a fine) |
| Repetition of an earlier convicted offense | Rigorous imprisonment – 3 years to 10 years (with a fine) |
| Wilful attempt to evade payment of tax, interest, or penalties | Rigorous imprisonment – 3 months to 3 years (in addition, a fine may be imposed) |
Obligations and Reporting for Indian Taxpayers with Foreign Assets
As international investments, such as overseas properties and equity investments, gain traction among Indian taxpayers, a firm grasp of the reporting and disclosure requirements tied to foreign assets is crucial. Many individuals have taken to international brokerage platforms to invest in US stocks. However, for those in possession of foreign assets, selecting the appropriate Income Tax Return (ITR) Form is imperative to ensure compliance.
An all-too-common error involves using Form ITR-1 for individuals holding US stocks, which may not be the correct form. Taxpayers with assets or financial interests situated outside India, signing authority in foreign accounts, or income from foreign sources should instead opt for Form ITR-2 or ITR-3, contingent on the nature of their income and foreign assets. This approach ensures full compliance with the relevant Schedule FA (Foreign Assets) and Schedule CG (Capital Gains).
Section 43 of the Black Money Act imposes a significant penalty of Rs. 10,00,000 on residents and ordinary residents in India for inaccuracies in providing information about assets located abroad. Schedule FA encompasses various particulars, including foreign depository accounts, custodial accounts, equity and debt interests, insurance contracts, financial interests in foreign entities, immovable property, and more. Schedule CG necessitates the reporting of specific details regarding capital assets, encompassing acquisition costs, improvements, expenditure, consideration value, and other pertinent information.
Special attention is warranted when dealing with dividend income, which should be disclosed in Schedule OS. Unique disclosure requirements exist for dividends subject to special tax rates in ITR-2 and ITR-3. Additionally, capital gains arising from the transfer of capital assets mandate the use of ITR-2 or ITR-3, with consolidated computations for multiple capital assets of the same type.
To steer clear of penalties under the Black Money Act, it is imperative for Indian taxpayers with foreign assets to fully comply with these reporting and disclosure requirements. Choosing the appropriate ITR form and providing accurate details concerning foreign holdings are pivotal. The deadline for filing ITR for A.Y. 2023-24 is July 31, 2023.
| Section | Nature of Default | Quantum of Penalty |
| 41 | Non-disclosure of foreign income and assets | 3 times of the tax payable |
| 42 | Failure to furnish a return of income before the end of the relevant assessment year in respect of foreign income or assets (including financial interest in any entity) | Rs 10,00,000 (Rs 10 lakh) |
| 43 | If a return of income is filed but the assessee fails to disclose foreign income or assets (including financial interest in any entity) or furnishes inaccurate particulars of the same | Rs 10,00,000 (Rs 10 lakh) |
| 44 | Continuing default in payment of tax (this penalty will be levied irrespective of whether the assessee voluntarily paid the required taxes before the levy of the penalty) | Equivalent to the amount of tax arrears |
| 45 | Other defaults such as failure to answer queries, sign statements, attend required meetings, or produce books of accounts, etc. | Rs 50,000 (Rs 50 thousand) to Rs 200,000 (Rs 2 lakh) |
Read: Income Tax on Futures & Options (F&O) Trading
Penalties under the Proposed Legislation
One-Time Compliance Opportunity
The Black Money Act provides a unique chance for individuals with undisclosed foreign assets to come forward. They can declare these assets, pay a 30% tax and an equal penalty to avoid prosecution. This is not an amnesty but a compliance opportunity.
In summary, the Black Money Act imposes strict penalties for non-compliance and underscores the importance of proper reporting for Indian taxpayers with foreign assets. The Act also offers a unique compliance opportunity, emphasizing the need for accurate disclosure and adherence to the law.
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