Black money or unaccounted money or undisclosed income, have for long been key issues for the government and the income tax authorities. Over a decade ago, revenue officials obtained information through various sources about black money or undisclosed income being stashed in numerous overseas accounts, pointing at massive unauthorized outflow of money and tax evasion by the residents. Tax evasion is a major threat to any country’s economy as it results in loss in revenue, increase in inflation and rise in corruption.
Even former finance minister, Arun Jaitley, during his budget speech in 2015, had stated that “The problems of poverty and inequity cannot be eliminated unless generation of black money and its concealment is dealt with effectively and forcefully".
To effectively deal with this issue, the government felt the need to implement a legal framework which could regulate the black money transactions and capture the unauthorised outflow of funds as well as undisclosed accounts outside India. This need led to the Undisclosed Foreign Income and Assets (Imposition of Tax) Bill, 2015, passed in the Parliament. This resulted in the introduction of Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (‘Black Money Law’).
Simultaneously, the legislature also mandated the disclosure requirements for every resident and ordinarily resident taxpayer holding any asset (including financial interest) or having income from any source outside India.
IT guidelines require taxpayers to make adequate disclosure in schedule FA of foreign accounts, shares of foreign companies, mutual fund units of a foreign fund, immovable property, income held, etc., including beneficial interest, if any, in the return of income every year. It is important to highlight that the scope of disclosures with regard to foreign assets/income is wide enough to even cover transactions such as shares of foreign entity allotted to employees of an Indian company under an Employee Stock Option Plan (ESOPs) or similar schemes even if the tax is withheld by the Indian entity on the perquisite value of such ESOPs.
Taxpayers should note that these disclosures include assets held in a year even when no income was earned on them. Thus, just computing tax liability on incomes earned in a year does not end a taxpayer’s duty while filing the Income Tax Return (ITR). It is of utmost importance to ensure that all requisite disclosures for all the income and assets (including offshore income and assets) have been adequately made.
Penalty and criminal liability
In recent times, tax regulators have actively been gathering information regarding undisclosed offshore investments and assets through the Exchange of Information provisions of Tax Treaties, enabling the automatic flow of information across jurisdictions. This has helped the government to tap black money or unaccounted/undisclosed money of taxpayers, scrutinize the cases in detail and initiate proceedings both under the Income Tax Law as well as under the Black Money Law.
The Black Money Law provides for a separate, more stringent taxation framework for undisclosed foreign income and assets. It not only levies tax and imposes penal consequences on any undisclosed foreign assets or income, but also has penal consequences on failure/incorrect disclosure of foreign asset/income details in return of income filed by the taxpayers.
Any failure to make complete and true disclosures of foreign income/assets invites a penalty of ₹10 lakh as per the Black Money Law. Additionally, it carries a risk for the same to be considered as ‘undisclosed foreign income and asset’ that may attract tax liability of 30% and penalty of thrice the amount of tax liability on such undisclosed foreign income and asset, not to mention that it may also result in criminal liability for attempting to evade tax in relation to such income.
The relevant point of taxation of an undisclosed foreign asset is the point of time when such asset comes to the notice of the tax regulators and the taxpayer has no proper explanation to offer about the source of its investment. Further, based on recent rulings in this regard, the said implications would apply irrespective of the fact that such assets existed at the point of taxation or even prior to the enactment of the Black Money Act.
To safeguard oneself against tax, penalties and other legal consequences, taxpayers must ensure that they have accurately disclosed all foreign assets/income disclosures in their ITR.
Even as the due date to file ITR for the current assessment year has passed, resident taxpayers should revisit their ITR and thoroughly check whether foreign asset and income disclosures have been correctly made in the return of income filed. If the same has inadvertently been left out or if the ITR is yet not filed, taxpayers can furnish the missed out disclosures details by filing a revised and belated return on or before 31 December 2022.
Sachin Garg is partner - direct taxation, Nangia Andersen LLP. Sanjoli Maheshwari, director, Nangia Andersen LLP, contributed to this article.
Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!
Related Premium Stories
Here’s what you should know to exchange old jewellery for new
‘Market momentum to continue in 2024 but stick to large-caps’: Devina Mehra
Mint Explainer: What Irdai’s latest draft says about policy surrender charges
Taxes, inflation and comfort: Why it is absolutely necessary to stay debt-free
MSM Reits: How you can earn from tiny realty holdings
Boon or bane? Decoding the reality of zero-cost EMIs
Why diversification is still the best game for India’s retail investors
‘Transparency in hospital costs is key to affordable health premiums’
What Sebi needs to consider in its 2024 agenda
Explore Premium
Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
MoreLess
Published: 31 Aug 2022, 11:06 PM IST
As a seasoned expert in the field of taxation and financial regulations, I can confidently delve into the intricate details presented in the provided article on black money, tax evasion, and the legal framework surrounding it. Over the years, I have closely followed and analyzed the evolving landscape of international financial transactions, tax laws, and government initiatives aimed at curbing illicit financial activities.
The article begins by addressing the longstanding concerns of black money or undisclosed income, emphasizing its adverse effects on the government and the economy as a whole. It highlights the unauthorized outflow of money and tax evasion by residents, underscoring the economic ramifications such as revenue loss, increased inflation, and heightened corruption.
To tackle these issues effectively, the government introduced the Undisclosed Foreign Income and Assets (Imposition of Tax) Bill in 2015, leading to the enactment of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, commonly known as the 'Black Money Law.' This legal framework is designed to regulate transactions involving black money and undisclosed funds held outside India.
One crucial aspect mentioned in the article is the disclosure requirements imposed on residents and ordinarily resident taxpayers. The Income Tax guidelines mandate comprehensive disclosure of foreign assets, financial interests, income sources, and even transactions like shares allotted under Employee Stock Option Plans (ESOPs). Importantly, these disclosures extend to assets held in a given year, even if no income is earned, emphasizing the thoroughness required in tax filings.
The article underscores that tax regulators have actively sought information on undisclosed offshore investments through international cooperation, specifically the Exchange of Information provisions in Tax Treaties. This has empowered the government to identify and scrutinize cases involving black money, leading to proceedings under both Income Tax Law and the Black Money Law.
The Black Money Law imposes a stringent taxation framework for undisclosed foreign income and assets, with severe consequences for non-compliance. Failure to make accurate disclosures can result in penalties and criminal liabilities. The penalties include a ₹10 lakh penalty, along with potential tax liability of 30% on undisclosed foreign income and assets, plus a penalty of three times the tax liability.
The article also emphasizes the point of taxation for undisclosed foreign assets, which occurs when the tax regulators become aware of the asset, irrespective of when it was acquired. To avoid legal consequences, taxpayers are urged to ensure accurate disclosure of foreign assets and income in their Income Tax Returns (ITR).
In the final segment, the article advises resident taxpayers to review their ITR to ensure correct foreign asset and income disclosures. For those who may have overlooked these details, the option to file a revised or belated return is mentioned, with a specific deadline of December 31, 2022.
In conclusion, the article provides a comprehensive overview of the legislative measures, disclosure requirements, and potential consequences associated with black money and undisclosed foreign income. It serves as a valuable guide for taxpayers and financial professionals navigating the complex landscape of international taxation and financial regulations.
