Black Money Act in India

India has entered into information sharing agreement with the United States (U.S.) under the Foreign Account Tax Compliance Act (FATCA). This has been in place since 2014.

A widely publicized manifesto item that the current government has been highlighting is the eradication of corruption from India. In light of this, Black Money (Undisclosed Foreign Income and Assets) and the Imposition of Tax Act (2015) (Black Money Act) was enacted. Black Money Act deals with the problem of black money by levying tax on the undisclosed income and assets held by Indian residents abroad and Indian-sourced income of non-resident Indians invested in assets abroad.

From April 1, 2016 a tax of 30% is charged of the total undisclosed foreign income and asset in a previous year. A penalty of up to 90% and a rigorous imprisonment is given if there a person is found guilty of non-disclosure. In general, the terms whether specifically defined or not under the Black Money Act are assigned the same meaning as under the Income-tax Act, 1961, i.e. the Indian income tax law.

Circular nos. 13 of 2015 dated July 6, 2015 and 15 of 2015 dated September 3, 2015 has set out questions to exemplify situations where an Indian resident is or is not required to declare foreign income and assets in India. The questions set out in these circulars have given certain relief to the taxpayers who were anxious on the applicability of the wide scope of the Black Money Act. The Indian government has been proactively making efforts to deal with the menace of black money by various efforts in addition to the Black Money Act, like constituting Special Investigation Team on Black Money, information from the financial scandals abroad and using Locational Banking Statistics in collaboration with Bank for International Settlements. The taxpayers who are currently covered or may be covered under the Black Money Act should be careful in complying with the reporting requirements as there is a huge cost of tax and penalty that may apply consequently.

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Our whitepaper titled Interaction of Indian and U.S. Tax Laws covers a section on Black Money Act at the beginning of the paper to highlight the measures taken by the Indian government to change the behavior of high net worth individuals from being discreate to disclosing information of their assets around the world. The government has been proposing to take measures that stops the menace of corruption and eroding money out of India to foreign banks. In addition to resident Indians required to comply with reporting their worldwide assets in India, nonresident Indians with taxable income of more than INR5 million (approx. USD77,000) are required to report certain movable or immovable assets in India.

The leak of confidential financial information as part of various scandals have alarmed governments around the world to keep a check on the wealth that its residents / citizens are enjoying vs. reporting. The efforts to coordinate with other countries have been a boon as it eases the task to trace the defaulters. Accordingly, high net worth individuals and global businesses have to be compliant with the law and its ignorance can be no excuse as streamline procedures generally require a non-willful or non-reckless excuse to not file the tax and information returns in a country.