Blow to Black Money – The Undisclosed Foreign Income and Assets (Imposition of Tax) Act, 2015

Siddharth Bangar

Black Money:
There is no uniform or crystal clear way to define Black Money in economic sense. In a broad sense, it can be said to be that money on which tax is not paid. Such income could be from legitimate means or illegitimate sources like drug trafficking, smuggling, corruption etc.

The National Institute of Public Finance and Policy in its 1985 Report on Aspects of Black Money defined ‘Black Economy’ as ‘the aggregates of incomes which are taxable but not reported to the tax authorities’. Further, black incomes or unaccounted incomes are ‘the extent to which estimates of national income and output are biased downwards because of deliberate, false reporting of incomes, output and transactions for reasons of tax evasion, flouting of other economic controls and relative motives’[1].

Black money denotes not only unaccounted currency which is either hoarded or is in circulation outside disclosed trading channels but also its investment in gold, jewellery and even precious stones made secretly, and in land and buildings and business assets over and above the amounts shown in the books.[2]

Initial Steps to counter:
Ram Jethmalani & Ors. v. Union of India[3] is the landmark case against Black Money where the Hon’ble Supreme Court ordered the govt. to set up a Special Investigation Team (SIT) headed by two former Supreme Court judges to investigate the cases of unaccounted money stashed abroad. This SIT would be responsible to the court and immediate disclosure should be made by the govt. to disclose all the documents and information regarding such persons.

Govt. was pressurized to come up with a White paper on Black Money to present different facets of Black money and its complex relationship with the policy and administrative regime in the country. It also reflected the strategies that the government is adopting to address the issue of Black money and corruption in the public life[4].

Effects of Black Money:
Some of the effects of Black Money are that, firstly, it gives false information regarding the economy like national income, savings, investments etc. and hampers all the policies of the nation. Secondly, it completely distorts the resource allocation in the economy and would result into wastage of money. Thirdly, it gives rise to Inflation as when more money is in circulation, the purchasing power increases as compared to the supply of the commodity. Real Estate is the worst affected sector due to this. Illegal activities shoot up as this money is transferred to foreign tax havens through secret channels like hawala, under invoicing of exports, over invoicing of imports. Moreover, it is one of the reasons of surging anti-social activities.

There is no official statement or record regarding amount of Black Money stashed abroad. The estimate as per Swiss Banking Association holds $1,456 billion Indian Black Money in Swiss banks[5]. Another estimate specifies that Indians salted away $462 billion in overseas tax heavens by 2008[6].

The Undisclosed Foreign Income and Assets (Imposition of Taxes) Act, 2015:

Bowing down to the immense public pressure and maintaining the sanctity of their pre-poll promises to bring back this money, this NDA government finally introduced this Bill in the Lok Sabha on March 20, 2015 to unearth the black wealth.

“The world is no longer willing to tolerate tax havens which thrive in Secrecy”, Arun Jaitley said in his speech.

This Act amends the provisions of Income Tax Act, 1961 related to foreign income provisions. ‘Foreign Income’ which would come in its ambit consists of, income which is not been disclosed by the tax returns having source outside India, income on which no tax have been paid having source outside India and value of an undisclosed asset located outside India.

A limited period one-time Compliance Window has been introduced whose main objective is to give an opportunity to the holders to disclose their overseas income or face dire consequences. Persons declaring their foreign undisclosed income would be given clean chit after 30% tax and 100% penalty on such tax. Government has received 2428 crores tax from 644 entities till compliance window closed.[7]

A flat tax of 30% would apply to undisclosed foreign income or assets without any exemption, deduction, set off or carry forward of losses. The penalty of non-disclosure of foreign income or assets would be equivalent to thrice the amount of tax payable in addition to 30% tax which, in layman terms, would be 120% surpassing the entire foreign assets and income. Prosecution is possible in the bracket of 3 to 10 years which is enough to petrify these holders.

Non disclosure of overseas assets would become a very risky affair from 2017 as government will be then start getting information from foreign countries.[8] Group on Automatic Exchange of Information (AEOI) which is the result of OECD and G20 developing the Standard with the input of other jurisdictions and in consultation with the financial industry would help in checking tax evaders.

This AEOI which will be effective from 2017 which coupled with Black Money Act, 2015 would help the economy in curbing the menace of Black Money.


Author: Siddharth Bangar, Pursing LL.B. from Faculty of Law, Delhi University.

New Delhi, India
[1] 1985 Report on aspects of Black Money by NIPFP.
[2]  Wanchoo Committee Report, 1971.
[3]  (2011) 8 SCC 1.
[4]  White Paper on Black Money, May 2012, Ministry of Finance.
[5]Swiss Bank Association Report, 2006.
[6]Global Financial Integrity, Washington.
[7]Black money: Government collects Rs 2,428 crore tax from over 600 entities, Economic Times, January 6, 2016.
[8] Non-disclosure of overseas assets to become ‘risky affair’ from 2017, warns Jayant Sinha, Business Standard, December 03rd, 2015.