PMLA

Overview of the Black Money Act, 2015

The Black Money Act, also known as the “Undisclosed Foreign Income and Assets Act, 2015^[1],” is a crucial piece of legislation aimed at tackling the menace of black money or undisclosed foreign income and assets. In this blog, we will delve into the intricacies of the Black Money Act, providing a comprehensive overview of its provisions, structure, and significance in combatting black money.

Introduction to the Black Money Act

The Black Money Act was enacted by the Government of India in 2015 to curb the generation and circulation of black money, both within the country and overseas. It seeks to identify and penalize individuals who have undisclosed foreign income and assets, and to unearth such undisclosed income and assets. The Act empowers the government to impose stringent penalties and initiate criminal prosecution against offenders, while also providing a framework for the declaration of undisclosed income and assets and their subsequent taxation.

Basic Structure of the Black Money Act

The Black Money Act, initially applicable only to residents of India, and was amended in July 2019 to include non-residents and non-ordinary residents who were ordinary residents in the last year to which the foreign income relates or in the year in which the foreign asset was acquired. The Black Money Act plays a crucial role in assessment of proceedings under the Income Tax Act, 1961, particularly in cases where undisclosed foreign income or assets are detected. The Act may be invoked by the Assessing Officer (AO) even during regular income tax assessment proceedings, and there is no separate requirement to file a return of income under this Act. The Act specifically covers two issues: undisclosed foreign income and undisclosed foreign assets.

The Act imposes a base tax of 30% on any undisclosed foreign income/foreign asset detected by the AO, in addition to a penalty of 90% (three times the amount of tax computed). There are also other penalties for non-disclosure of the required information and provisions for prosecution within the Act.

Key Provisions of the Black Money Act

The Black Money Act contains several key provisions aimed at effectively combatting black money. Some of the significant provisions are:

1. The penalty provisions
   • Undisclosed foreign income/assets: A penalty equal to 3 times the amount of tax payable, in addition to the tax payable at 30%.
   • Failure to furnish returns: A fine of Rs 10 lakh for not furnishing income tax returns in relation to foreign income or assets. This would not apply to an asset with a value of five lakh rupees/less.
   • Undisclosed/inaccurate details of foreign assets: A fine of Rs 10 lakh if a person who has filed tax returns doesn’t disclose his foreign income/submits inaccurate details of the same. This wouldn’t apply to an asset with a value of five lakh rupees or less.
   • Second-time defaulter: Any individual or a person who continues to default in paying tax that is due would be liable to pay an amount equal to the amount of tax arrears.
   • Other defaults: If an individual fails to abide by the tax authority in answering questions, signing off on a statement, or attending or producing relevant documents, he is liable to pay a fine between Rs 50,000 to 2 lakh rupees.
2. Declaration and Taxation of Undisclosed Foreign Income and Assets: The Act provides a one-time opportunity for individuals to declare their undisclosed foreign income and assets and pay taxes and penalties on them at a concessional rate. Failure to avail of this opportunity can result in higher penalties and prosecution.
3. Prosecution of Offenders:
   • Willful attempt to evade tax: Rigorous imprisonment from three to ten years and a fine.
   • Willful attempt to evade payment of tax: Rigorous imprisonment from 3 months to 3 years and a fine.
   • Failure to furnish returns or non-disclosure of foreign assets in returns: Rigorous imprisonment of six months to seven years and a fine.
   • Punishment for abetment: Rigorous imprisonment of six months to seven years and a fine.
4. International Cooperation:
   The Act provides for the exchange of information and cooperation with foreign countries in matters related to undisclosed foreign income and assets. This enables the government to access information and evidence from foreign jurisdictions to effectively tackle the issue of black money and its cross-border implications.
5. The burden of Proof:
   Under the Black Money Act, the burden of proof is shifted to the assessee to prove the legitimacy of their foreign income and assets. This empowers the authorities to take action against those who fail to provide adequate explanations for their undisclosed foreign income and assets.
6. Confidentiality:
   The Act ensures the confidentiality of the declarations made by individuals under the scheme, barring certain exceptions. This provides a level of privacy and protection to those who come forward to disclose their undisclosed foreign income and assets.

Significance of the Black Money Act

The Black Money Act is a significant step towards curbing the menace of black money in India. It has several important implications, including:

1. Deterrence against Black Money: The Act serves as a deterrent against the generation and circulation of black money by imposing stringent penalties and criminal prosecution. It sends a strong message that undisclosed foreign income and assets will not be tolerated and will be met with severe consequences.
2. Promotes Transparency and Compliance: The Act promotes transparency and compliance by providing a framework for the declaration and taxation of undisclosed foreign income and assets. It encourages individuals to come forward and disclose their undisclosed foreign income and assets, thereby regularizing their tax affairs and contributing to the formal economy.
3. Enhances International Cooperation: The Act facilitates international cooperation by providing for the exchange of information and cooperation with foreign countries. This enables the government to access information and evidence from foreign jurisdictions, which is crucial in combating the issue of black money that often has cross-border implications.
4. Strengthens Enforcement Mechanisms: The Act strengthens the enforcement mechanisms by empowering authorities to take action against offenders, including imposing penalties, initiating criminal prosecution, and shifting the burden of proof. This enhances the government’s ability to effectively enforce tax laws and combat black money.
5. Promotes Fairness and Equity: The Act promotes fairness and equity by ensuring that those who evade taxes on undisclosed foreign income and assets are held accountable and face penalties, while those who comply with the law are protected. It creates a level playing field for taxpayers and promotes a culture of compliance.

Conclusion

The Black Money Act is a comprehensive legislation that seeks to tackle the issue of black money by providing a framework for the declaration, taxation, and enforcement of undisclosed foreign income and assets. Its stringent provisions, focus on international cooperation, and promotion of transparency and compliance make it a crucial tool in the government’s efforts to combat black money. It serves as a deterrent against the generation and circulation of black money and promotes fairness and equity in the tax system. Compliance with the Act is essential for individuals with undisclosed foreign income and assets to regularize their tax affairs and contribute to the formal economy.

Also Read: Undisclosed Foreign Income and Assets