Black Money - Undisclosed Foreign Income and Assets

To control the black money and bring into accountability the unaccounted income which is circulating in India, Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 was passed by both the houses of parliament and the Act received permission to be enacted as legislation from the president of India on 26th May 2015. The Act was made effective from 1st April 2016. Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 deals with the problem of Black Money concerning undisclosed foreign income and undisclosed foreign assets. The Act also provides the procedure for dealing with such undisclosed foreign income and foreign assets and further it provides for the imposition of tax on any undisclosed foreign income and undisclosed foreign assets.

Basis of Charge

The provisions relating to the basis of charge are contained under section 3 of the Act. In case of any undisclosed foreign income and foreign asset, the resident assessee shall be liable to pay tax @ 30%. The rate of 30% should be applied on the total amount of undisclosed foreign income and/or undisclosed foreign asset in the financial year in which such income/assets come to the notice of the Assessing Officer. The conditions required for applicability of the Act can be summarized hereunder –

The assessee is resident in India; and
The assessee has undisclosed foreign income or has undisclosed foreign assets. In case the assessee is covered within the above referred two points, then in such cases, the assessee is liable to pay tax @ 30% on such undisclosed foreign income and/or undisclosed foreign assets, as the case may be.

Definition of undisclosed assets located outside India is contained under section 2 (11) of the Act. Following are the essential points which can be derived from the definition of ‘undisclosed assets located outside India’ –

The asset is located outside India;
The asset includes the financial interest in any entity which is located outside India;
The asset can be in the name of the assessee, or the assessee is the beneficial owner of the said asset;
The assessee has no explanation concerning such assets or the explanation provided is not satisfactory as per the assessing officer.

Definition of undisclosed foreign income and asset has been provided under section 2 (12) of the Act, and the same is reproduced hereunder – ‘Undisclosed foreign income and asset’ means the total amount of undisclosed income of an assessee from a source located outside India and the value of an undisclosed asset located outside India, referred to in Section 4 and computed in the manner laid down in Section 5.’

Computation of Total Undisclosed Foreign Income and Asset

The manner of calculation of total undisclosed foreign income and asset is contained under section 5 of the Act, and the methodology which should be followed for the calculation is explained hereunder –

The following values should be deducted from the value of undisclosed assets located outside India –

Any income which has been assessed to tax for any assessment year under the Income Tax Act, 1961 before the assessment year to which the Act applies; or
Any income which is assessable or has been assessed to tax for any assessment year under this Act.

The deduction shall be allowed only when the assessee furnishes sufficient evidence to the Assessing officer showing that the asset has been purchased from the income which has been assessed or is purchased from the income which is assessable to the tax.

The following deductions shall not be allowed from the value –

Deduction in respect of any expenditure;
Deduction in respect of any allowance;
Set off of any loss; Above deduction shall not be allowed whether or not the same is allowable as per provisions contained under the Income Tax Act.

Penalty Provisions As Contained In The Act

Section 41 – Penalty for Undisclosed Foreign Income and Asset –

A penalty of an amount equal to three times of tax computed is payable in case of undisclosed foreign income and asset.

Section 42 – Penalty for Failure To Furnish Return for Foreign Income and Foreign Assets –

A penalty of an amount of INR 10 Lakhs is payable in case of failure in furnishing return for foreign income and foreign assets.

Section 43 – Penalty for Failure to Furnish Information or Information Furnished is Inaccurate –

A penalty of an amount of INR 10 Lakhs is payable in case return of income has been furnished; however, information relating to the foreign asset has not been furnished, or the information furnished is inaccurate.

Section 44 – Penalty for Default in Payment of Tax Arrears –

A penalty of an amount equal to the amount of

income tax arrears is payable in case the assessee defaults in making payment of tax.

Section 45 – Penalty for other Defaults –

A penalty of an amount not less than INR 50,000/- is payable in the following cases; however, the penalty payable under this section should not be more than INR 2,00,000/-

The person fails to answer any question put forth by the assessing officer; or
The person fails to sign any statement made by him before the tax authorities; or
The person fails to attend or produce books of accounts or documents at the place or time in response to the summons issued under Section 8.

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Frequently Asked Questions

Common questions about Undisclosed Foreign Income & Asset Tax Act, India 2015.

The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 is a legislation passed by the Indian Parliament to address the issue of undisclosed foreign income and assets. It provides a framework for dealing with such undisclosed foreign income and assets, and imposes a tax on them.

Any resident of India who has undisclosed foreign income or undisclosed foreign assets is liable to pay tax under this Act at the rate of 30% on the total value of such undisclosed foreign income and assets.

An undisclosed asset located outside India refers to any asset located outside India, including financial interests in foreign entities, where the assessee is the beneficial owner and cannot provide a satisfactory explanation for the source of the asset.

The total undisclosed foreign income and asset is calculated by deducting any income that has been assessed or is assessable to tax under the Income Tax Act, 1961 or this Act, from the value of undisclosed assets located outside India, provided sufficient evidence is furnished.

The Act imposes various penalties for non-compliance, including a penalty equal to three times the tax computed for undisclosed foreign income and assets, a penalty of INR 10 lakhs for failure to furnish returns or furnishing inaccurate information, and penalties for default in payment of tax arrears and other defaults.

No deductions are allowed against undisclosed foreign income and assets under this Act, including deductions for expenditure, allowances, or set-off of losses, whether or not such deductions are allowed under the Income Tax Act, 1961.

The main objective of this Act is to control the problem of black money, particularly undisclosed foreign income and assets, by bringing them into accountability and subjecting them to taxation.

The Act received the President's assent on 26th May 2015 and came into effect from 1st April 2016.

The Act applies to residents of India, but it does not define the criteria for determining residency. The residency status is likely to be determined based on the provisions of the Income Tax Act, 1961.

The Act does not provide specific provisions for appealing the penalties imposed. However, it is likely that the general appeal provisions under the Income Tax Act, 1961 would be applicable for appealing against the penalties imposed under this Act.