• By ADMIN
• Posted 20 May, 2023
• 1812
• 0

Overview on Black Money Law in India

Government of India has enacted Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (Black Money Law). This act aims to detect and tax undisclosed foreign income and assets held by Indian citizens or resident of India. It imposes strict penalties and fines for non-disclosure of such assets and income. This article is an attempt to explain in brief the Black Money Law: -

What is Black Money?

Resident of India (other than not-ordinarily resident) having foreign source of Income and Assets which are not disclosed in the return of income filed under Income-tax Act or wherever required to file Income-tax return to disclose such information, but failed to file the same are treated as black money for the purposes of this law. It is pertinent to note that for the status of “Resident” of India, all income earned by him in the world is taxable in India, hence global income to be disclosed in the Income-tax Return filed in India. The following are the two terms are the key aspects for the entire black money law:-

1. Undisclosed asset located outside India.
2. Undisclosed foreign income.

Undisclosed asset located outside India.

An asset (including financial interest in any entity) located outside India, held by the assessee in his name or in respect of which he is a beneficial owner, and he has no explanation about the source of investment in such asset or the explanation given by him is in the opinion of the Assessing Officer unsatisfactory.

Undisclosed foreign income

The total amount of undisclosed income of an assessee from a source located outside India.

Resident becoming Non-Resident.

"Assessee" for the purposes of black money law means a person, being a resident in India within the meaning of section 6 of the Income-tax Act, 1961 (43 of 1961) in the previous year; or being a non-resident or not ordinarily resident in India within the meaning of clause (6) of section 6 of the Income-tax Act, 1961 in the previous year, who was resident in India either in the previous year to which the income referred to in section 4 relates; or in the previous year in which the undisclosed asset located outside India was acquired.  Hence, the period in which the person become resident of India and had source of foreign income and acquisition of asset matters.

Scope of Black Money Law

The total undisclosed foreign income and asset of any year of an assessee shall include the following: -

1. the income from a source located outside India, which has not been disclosed in the return of income furnished within the time specified in Explanation 2 to sub-section (1) or under sub-section (4) or sub-section (5) of section 139 of the Income-tax Act, 1961.

2. the income, from a source located outside India, in respect of which a return is required to be furnished under section 139 of the Income-tax Act but no return of income has been furnished within the time specified in Explanation 2 to sub-section (1) or under sub-section (4) or sub-section (5) of section 139 of the said Act; and

3. the value of an undisclosed asset located outside India.

Tax rate on undisclosed foreign income and asset

There shall be charged on every assessee for every assessment year a tax in respect of his total undisclosed foreign income and asset of the previous year @ 30% of such undisclosed income and asset.

Interest on tax payable under Black Money Law

In addition to the above said tax, interest u/s 234A, 234B and 234C of the Income-tax Act, 1961 to be paid. Interest under section 234A is levied for delay in filing the tax return of income. Interest is levied at 1% per month or part of a month on the tax amount outstanding. The interest needs to be paid is simple interest. Under section 234B, interest for default in payment of advance tax is levied at 1% per month or part of a month. The nature of interest is simple interest. In other words, the taxpayer is liable to pay simple interest at 1% per month or part of a month for default in payment of advance tax. Interest under section 234C for default in payment of instalment(s) of advance tax is charged at 1% per month or part of a month.

Valuation of undisclosed asset located outside India.

An undisclosed asset located outside India shall be charged to tax on its value (Fair Market Value) in the previous year in which such asset comes to the notice of the Assessing Officer.

Computation of total undisclosed foreign income and asset

In computing the total undisclosed foreign income and asset,

1. no deduction in respect of any expenditure or allowance or set off of any loss shall be allowed to the assessee, whether or not it is allowable in accordance with the provisions of the Income-tax Act.

2. any income, which has been assessed to tax for any assessment year under the Income-tax Act prior to the assessment year to which this Act applies; or which is assessable or has been assessed to tax for any assessment year under this Act, shall be reduced from the value of the undisclosed asset located outside India, if, the assessee furnishes evidence to the satisfaction of the Assessing Officer that the asset has been acquired from the income which has been assessed or is assessable, as the case may be, to tax

Illustration

A house property located outside India was acquired by an assessee in the previous year 2009-10 for fifty lakh rupees. Out of the investment of fifty lakh rupees, twenty lakh rupees was assessed to tax in the total income of the previous year 2009-10 and earlier years. Such undisclosed asset comes to the notice of the Assessing Officer in the year 2023-24. If the value of the asset in the year 2023-24 is one crore rupees, the amount chargeable to tax shall be A-B=C

where,

A=Rs.1 crore, B=Rs. (100 x 20/50) lakh= Rs.40 lakh, C=Rs. (100-40) lakh=Rs.60 lakh.

Commencement of Proceedings under Black Money Law

The Assessing Officer on receipt of an information from an income-tax authority under the Income-tax Act or any other authority under any law for the time being in force or on coming of any information to his notice, serve on any person, a notice requiring him on a date to be specified to produce or cause to be produced such accounts or documents or evidence as the Assessing Officer may require for the purposes of this Act and may, from time to time, serve further notices requiring the production of such other accounts or documents or evidence as he may require.

Time limit for completion of assessment

No order of assessment or reassessment shall be made after the expiry of two years from the end of the financial year in which the notice issued by the Assessing Officer. 

Rectification of mistake on Orders

A tax authority may amend any order passed by it under this Act so as to rectify any mistake apparent from the record. No amendment under this section shall be made after a period of four years from the end of the financial year in which the order sought to be amended was passed. The tax authority shall not make any amendment, which has the effect of enhancing the undisclosed foreign income and asset or reducing a refund or otherwise increasing the liability of the assessee, unless the authority concerned has given to the assessee an opportunity of being heard. The tax authority concerned may make an amendment under this section, on its own motion; or on an application made to it by the assessee or, as the case may be, by the Assessing Officer. Any application received by the tax authority for amendment of an order shall be decided within a period of six months from the end of the month in which such application is received by it.

Time allowed to pay the demand.

Any amount specified as payable in a notice of demand shall be paid within a period of thirty days of the service of the notice, to the credit of the Central Government. Where the Assessing Officer has any reason to believe that it will be detrimental to the interests of revenue, if the period of thirty days is allowed, he may, with the previous approval of the Joint Commissioner, reduce such period as he deems fit.

Extended / Instalment Payment of Demand

The Assessing Officer may, on an application made by the assessee, before the expiry of a period of thirty days or the period reduced or during the pendency of appeal with the Commissioner (Appeals), extend the time for payment, or allow payment by instalments, subject to such conditions as he may think fit to impose in the circumstances of the case.

Consequences of non-payment of demand

Assessee shall be deemed to be an assessee in default, if the tax arrear is not paid within the time allowed.

Consequences of non-payment of instalment

Where an assessee defaults in paying any one of the instalments within the time fixed, he shall be deemed to be an assessee in default in respect of the whole of the then outstanding amount. Consequently, the Assessing Officer/Tax Recovery Officer shall recover the demand in any of the prescribed methods, including the following:-

1. Require the employer of the assessee to deduct from any payment to the assessee such amount as is sufficient to meet the tax arrear from the assessee. There are exceptions to it.
2. By notice in writing, require any debtor of the assessee to pay such amount, not exceeding the amount of debt, as is sufficient to meet the tax arrear of the assessee

Penalties & Prosecution under Black Money Law:

Conclusion:

It is important for the resident of India (other than not ordinarily resident and non-resident) to take adequate care to disclose all overseas disclosures required to be given in the Income-tax return. The information as to the foreign source of income and assets sought in the Income-tax return at present are detailed in a separate article for the benefit of the readers. Further, also refer to our article on who are liable to file Income-tax Return.

Disclaimer