The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, implies rigorous rules that aim to prevent tax evasion related to offshore accounts and properties. This legislation shifts the taxation responsibilities of an NRI when they return to India, making full disclosure of foreign assets and income important.
All undisclosed foreign assets become subject to taxation at 30% once you become an ordinary resident. It also includes penalties of up to 120% and even imprisonment in serious situations. It is vital to comply with the provisions of Black Money Act, as neglecting it could attract severe financial and legal consequences.
In this blog, we will understand the implications of the Black Money Act for NRIs. Also, we will discuss the related requirements to help NRIs ensure compliance with Indian tax laws.
Key Takeaways
- Reporting foreign assets accurately is mandatory for any beneficial ownership or signing authority.
- NRIs are generally not subject to the Black Money Act during their time abroad. However, those who return to India as residents need to report any undisclosed foreign assets they hold.
- Failing to report foreign assets can lead to severe consequences, including a 30% tax on the asset's fair market value, a 300% penalty on the tax amount, and even potential imprisonment ranging from 3 to 10 years.
- Foreign assets can include a variety of holdings, like bank accounts, real estate, investments, and other financial instruments outside India.
- Accurate reporting in Schedule FA of the Income Tax Return is important to ensure transparency. Any mismatch could lead to a defective return or incur severe penalties.
What is the Black Money Act for NRIs?
The Black Money Act, officially known as the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, is India's strict approach to preventing tax evasion through offshore assets. As a Non-Resident Indian (NRI), your tax responsibilities shift mainly based on your residency status, making it essential to understand this law.
The Act primarily targets undisclosed foreign assets held by individuals who are considered Indian residents for tax purposes. While you are an NRI, your foreign income is not covered by this legislation. However, once you return to India and become a resident, any such assets and income will be subject to examination.
Under the Black Money Act, undisclosed foreign income and assets are subject to tax and penalties. For NRIs returning to India, this includes:
- Trusts in foreign locations.
- Real estate holdings abroad.
- Foreign bank accounts and deposits.
- Investments in international securities or companies.
- Any other valuable asset outside India.
This law's extensive reach makes it essential for returning NRIs. Even if you have earned your money legally while staying abroad, failing to disclose these assets when you become an Indian resident can lead to serious consequences.
If you plan to return to India, it's important to understand the disclosure requirements under the Black Money Act to ensure compliance and avoid significant penalties.
Who Needs to Report Foreign Assets?
According to the Income Tax Act, 1961, Indian residents who are qualified as ROR need to disclose their foreign assets and income in their income tax return. The following individuals need to disclose their foreign assets on the income tax return:
- Beneficial Owners: If you are a beneficial owner of any financial assets outside India or hold a signing authority for any foreign bank account. Then, you need to disclose the details about these financial assets in the Income Tax Return accurately.
- Resident Individuals and HUFs: Every Indian taxpayer who is qualified as "Resident and Ordinarily Resident" must disclose all the details about their foreign assets and income in the Income Tax Return (ITR). It includes information related to the bank account in a foreign country or the signing authority of the accounts held outside India, investments in real estate, stocks, mutual funds, or any other financial instruments.
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What Counts as Foreign Assets?
Under the Black Money Act, "foreign assets" include a range of overseas holdings:
- Foreign Businesses or Partnerships.
- ESPs/ESOPs/RSUs (granted by foreign companies).
- Foreign Crypto on Overseas Exchange (Binance, Coinbase, Kraken).
- Foreign Bank Accounts, even if inactive or with a zero balance abroad.
- Foreign Real Estate (homes, apartments, inherited property abroad).
- Foreign Stocks, Brokerage Accounts, and Mutual Funds (Fidelity, Schwab, Webull, TD Ameritrade, Global Investing Platforms).
- Foreign Life Insurance/ Retirement Accounts (401K, Roth IRA, UK Pension, Superannuation Funds).
Additionally, joint accounts, trusts, and beneficial ownerships need to be reported.
How Foreign Assets are Taxed Under the Black Money Act?
After becoming an ROR, if a foreign asset is not reported, then the Act imposes:
- Prosecution of 3 - 10 years for willful concealment.
- 30% tax on fair market value (FMV) of the asset: not on income, but the value of the asset itself.
- 300% penalty on the tax amount: e.g., if tax = Rs. 10 lakh, then you might incur a penalty of Rs. 30 lakh.
- No limitation period: Authorities can question a 20-year foreign asset at any time.
What is the Difference Between Foreign Income Vs. Foreign Assets?
Here is a table stating the difference between foreign income and foreign assets:
| Category |
Foreign Income |
Foreign Assets |
| Meaning |
Income earned from sources situated outside India. |
Assets owned, held, or controlled outside India. |
| Applicable Law |
Income Tax Act, 1961 |
Black Money Act, 2015 (if undisclosed). |
| Taxability |
Taxed in India only if you are an ROR. |
Assets value is taxed at 30 % if undisclosed. |
| Reporting Requirement |
Report only if income is subject to taxation. |
Need to be reported in Schedule FA (if ROR), regardless of income. |
| Penalty for Non-Reporting |
No penalty if no income is earned |
Severe: 300% penalty + possible prosecution. |
| Does Income Matter? |
Yes, income matters as only income is taxed. |
No, even zero-income assets need to be disclosed. |
| Risk Factor |
Carries a lower risk unless income is hidden. |
Higher risk if the asset is not disclosed, even if it is owned legally. |
| Main Insight |
Income - taxable money earned internationally. |
Assets = need to be disclosed even without income. |
What is the Importance of an Accurate Declaration in Schedule FA?
Schedule Foreign Assets (FA) is one of the main compliance sections in the Indian Income Tax Returns (ITR) for individuals who hold some assets outside India. This Schedule aims to ensure complete transparency of a taxpayer's foreign financial interests when they become a resident and ordinarily resident (ROR) in India.
Reporting accurately in Schedule FA is important as the Indian Tax System works on a rigid global disclosure framework. Upon becoming an ROR, you need to disclose every foreign account, investment, or property, regardless of whether you acquired your foreign assets legally while staying abroad or whether they generate income.
Failing to disclose these assets may result in serious consequences. Under the Black Money Act (Undisclosed Foreign Income and Assets ), 2015, any undisclosed foreign asset can attract the following:
- A penalty of 300% on the tax amount,
- A flat 30% tax on the value of the asset (not the income),
- Potential prosecution with jail terms, which can range from 3 to 10 years.
Minor omissions, such as a dormant foreign bank account, a low-value ESOP, or a joint account with a spouse, can incur issues due to non-compliance. Additionally, if Schedule FA is incomplete, the ITR may be marked as defective.
In short, don't consider an accurate declaration in Schedule FA as a formality because it is a legal requirement having strong enforcement. In case you are someone who holds any foreign asset and qualifies as an ROR. Then, full and accurate disclosure is essential to avoid severe penalties and stay compliant with the Indian tax laws.
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Final Thoughts
The Black Money Act is a crucial element in the Indian taxation system, particularly for returning NRIs. It is important to understand its provisions and implications for anyone who holds foreign assets or income. Accurate reporting of these assets is a legal obligation. Neglecting the requirements under this Act can lead to serious consequences.
Furthermore, it is advised for NRIs to seek expert guidance to ensure compliance. One such expert is Savetaxs. We have a team of experts who can help NRIs safeguard their financial interests and navigate the complexities of taxation in India with utmost confidence. Contact our team right away to ensure that you don't face any penalties or legal issues related to undisclosed foreign assets.
Note: This guide is for informational purposes only. The views expressed in this guide are personal and do not constitute the views of Savetaxs. Savetaxs or the author will not be responsible for any direct or indirect loss incurred by the reader for taking any decision based on the information or the contents. It is advisable to consult either a CA, CS, CPA, or a professional tax expert from the Savetaxs team, as they are familiar with the current regulations and help you make accurate decisions and maintain accuracy throughout the whole process.
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