Introduction
The problem of unreported offshore wealth has been a long-standing challenge for Indian tax authorities. To address this, the Government enacted the Black Money Act in 2015. Formally known as the black money and imposition of tax act 2015, this legislation created an independent framework for taxing, assessing, and penalising undisclosed foreign income and assets.
The purpose of this blog is to explain, in simple and structured language, what constitutes undisclosed assets and income, how the law treats them, the applicable tax consequences, key compliance duties, and recent discussions or amendments connected with the black money law.
Legislative Background and Objective
The Black Money Act was enacted to supplement the enforcement provisions already available under the Income-tax Act, 1961, administered by Central Board of Direct Taxes. Before 2015, foreign income or offshore assets were taxed under normal income-tax rules. However, detection was difficult, penalties were relatively low, and prosecution was rare.
The black money law created a separate regime with the following aims:
- Curb concealment of offshore financial interests
- Deter tax evasion by imposing stringent penalties
- Ensure mandatory reporting of foreign holdings
- Enable faster assessments and independent prosecution
- Create trust in international information-exchange systems
Meaning of “Undisclosed Foreign Income and Assets”
Under the Black Money Act, an “undisclosed asset” or “undisclosed income” refers to any foreign-located financial interest that has not been reported, not taxed, or cannot be explained based on existing records.
1. Undisclosed Foreign Assets
A foreign asset becomes undisclosed when:
- The assessee has a foreign property, bank account, investment, partnership interest, or any other right outside India but does not declare it in the return relating to income tax foreign assets.
- The assessee offers no satisfactory explanation about:
- Source of investment
- Year of acquisition
- Legitimacy of funds
- Supporting documents are missing or false.
Example:
A resident Indian holds a bank account in Singapore with ₹45 lakh deposited over several years. If the taxpayer does not disclose this account in the income tax foreign assets schedule of the return, it will be treated as an undisclosed asset under the black money and imposition of tax act 2015.
2. Undisclosed Foreign Income
Foreign income becomes undisclosed when it is:
- Earned or received outside India
- Not reported in the income return
- Related to an unreported asset
- Unable to be explained through past earnings or tax filings
Example:
A resident earns consulting income from a US-based company and receives it in an overseas bank account. If this income is not included in Indian taxable income, it is undisclosed foreign income.
Who Is Covered Under the Black Money Act? (Applicability in India)
The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 applies to a very specific category of persons. The law is designed to target residents of India, because residents are taxed on their global income and are required to disclose all foreign assets.
Taxability Under the Law
The Black Money Act imposes a stringent tax system that is separate from regular income-tax provisions.
Undisclosed Income Tax Rate
The applicable undisclosed income tax rate is:
- 30% tax on the value of the undisclosed asset or income
- No basic exemption limit, no deductions, no allowances
- Applicable for each discovery, regardless of the year of acquisition
The undisclosed income tax rate is intentionally high to act as a deterrent and ensure full disclosure.
Example:
If an undisclosed property in Dubai worth ₹1 crore is detected, the tax levied is 30% of ₹1 crore = ₹30 lakh, irrespective of when or how the asset was purchased.
Penalties
Penalties are among the harshest in Indian tax law:
- Penalties equal to 90% of the value of the asset
- Combined effect = 120% of total value
- Equals three to four times harsher than regular penalty provisions
A separate income tax penalty for foreign assets may also apply during assessments where misreporting is proven.
Example:
If an undisclosed foreign investment worth ₹50 lakh is detected:
- Tax = ₹15 lakh
- Penalty (90%) = ₹45 lakh
- Total liability = ₹60 lakh
The punitive nature aims to discourage concealment.
Mandatory Reporting of Foreign Assets
Residents must file an extended disclosure schedule for income tax foreign assets when submitting their return. This includes details of:
- Foreign bank accounts
- Foreign companies in which the individual is a shareholder
- Overseas immovable property
- Trusts or partnership interests
- Any other asset outside India
Failure to submit this may attract an income tax penalty for foreign assets during regular assessment, even when the person is not guilty under the black money law.
Assessment and Enforcement Framework
Independent Assessment Procedure
The Act provides for independent assessments separate from regular income-tax scrutiny. The assessing officer may inspect:
- Offshore transactions
- Information from foreign tax authorities
- Bank statements and foreign exchange trails
- Beneficial ownership disclosures
Year of Taxation
Unlike the Income-tax Act, where income is taxed in the year in which it accrues, the black money law taxes assets in the year of detection. This prevents taxpayers from avoiding tax by claiming old year acquisitions.
Use of International Information Exchanges
The law relies heavily on:
- FATCA information
- Common Reporting Standard (CRS) data shared by other countries
- Treaties facilitating exchange of information
This has significantly improved detection of foreign assets held by Indian residents.
Relevance of Section 15 of the Income Tax Act
Although the Black Money Act operates as a separate statute, some interpretative cross-references still rely on the Income-tax Act, 1961, such as Section 15 of the Income-tax Act.
This provision deals with taxability of salary income. It becomes relevant when foreign employment income or perquisites are not disclosed. If a taxpayer works outside India but qualifies as a resident, foreign salary may be taxed under section 15 of the income tax act within the broader assessment, and non-reporting can trigger penalties under both regimes.
Examples for Clarity
Example 1: Foreign Bank Account
A resident Indian maintains a bank account in Canada with ₹20 lakh balance. He forgets to report it in the income tax foreign assets schedule. When detected through CRS reporting, the entire ₹20 lakh becomes taxable under the undisclosed income tax rate of 30%, and penalties of 90% apply.
Example 2: Foreign Property Purchased Many Years Ago
An NRI turned resident holds an apartment in London purchased in 2008. After becoming a resident, he must disclose this under the asset schedule. If he fails, the property qualifies as undisclosed, and tax applies at the time of detection, regardless of the old purchase date.
Example 3: Unreported Foreign Business Income
An individual performing contract work for a German company keeps income overseas and does not report it. This becomes undisclosed foreign income and is taxable under the black money and imposition of tax act 2015 with consequential penalties.
Recent Developments and Ongoing Discussions
CRS-Based Detection Increasing
Recent public statements from the tax administration indicate significant growth in cross-border information exchange. This has led to increased identification of offshore assets that were not reported in returns, strengthening the effectiveness of the Black Money Act.
Strengthening of Beneficial Ownership Rules
Discussions have intensified regarding mandatory declarations of beneficial ownership in foreign entities. Multiple jurisdictions have moved towards transparent registers, improving detection under the black money law.
Judicial Scrutiny of Penalty Provisions
Recent tribunal cases have examined whether penalties under the Act can be imposed even for inadvertent reporting mistakes. Courts have generally held that genuine errors made without intent may require leniency, although deliberate concealment invites the full rigours of the law.
Emphasis on Voluntary Corrective Disclosures
The Government has encouraged taxpayers to correct errors in past filings through updated returns. While not an amnesty scheme, voluntary correction helps avoid prosecution risk under the Black Money Act 2015.
Compliance Expectations for Taxpayers
To avoid issues under the Black Money Act, taxpayers must:
- Maintain records of foreign investments and bank accounts
- Disclose all income tax foreign assets in the prescribed schedule
- Report foreign income even if tax is paid abroad
- Keep documentation about the source of funds
- File returns accurately and on time
Non-compliance may trigger both regular provisions and the stringent consequences under the black money law.
Conclusion
The enactment of the Black Money Act marked a major shift in India’s approach to unreported offshore wealth. By imposing a high undisclosed income tax rate, strict penalties, and criminal consequences, the black money and imposition of tax act 2015 seeks to ensure full transparency of global income and assets held by Indian residents.
Understanding what constitutes undisclosed foreign income or assets is essential for both individuals and businesses. With international information exchange becoming stronger each year, non-disclosure is no longer a concealed risk. The most effective approach is full compliance, timely disclosure, and proper documentation. Through these measures, taxpayers can avoid harsh penalties and contribute to a more transparent financial system.