Black money refers to money that is not legitimate. Understanding the inception or genesis of black money is critical for understanding its circulation and subsequent manipulation.
Black money can be traced to two of the following sources:
a. Money generated through illegal activities, such as crime, terrorism, drug trade, and corruption, is not permissible under law. These activities are punishable in India.
b. Wealth developed and collected by failing to pay dues to the public exchequer. In this case, activities undertaken by the culprit could be permissible under the law of the land but they fail to report the income generated or do not conform to tax liabilities.
Black money in the social, political, and economic space results in the manipulation of governance and increases corruption. The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act was enacted on April 1 2016.
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Black Money Act
The Black Money Act consists of 7 Chapters and 88 Sections, including 7 forms and 12 rules. The Assessing Officer may invoke it even during regular Income Tax Assessment proceedings. The return of income under Section 139 of the Income Tax Act is crucial and is typically the cause of action under this Act. This Act does not include return of income. This Act covers only two issues:
- Undisclosed foreign income or
- Undisclosed foreign assets.
A base tax of 30% is levied on any undisclosed foreign income or foreign assets founded by the Assessing Officer. Furthermore, penalty is levied at the rate of 90% (three times the amount of tax computed). Various other fines are levied because of the non-disclosure of the required information and prosecution provisions within the Act.
Establishment of the Black Money Act
The Black Money Act is a statute that details taxes and fines to be levied in addition to prescribing prosecution. Section 3 of the Act details levying a black money tax of 30% on unknown foreign revenue and assets. Section 41 presents a levy of a fine equal to three times the black money tax. Thus, if a specific charge is assumed by this Act, then 120% of the charge is payable in the form of 30% tax plus a fine equal to three times the tax. However, according to Sections 42 and 43 of the Act, in cases in which the undisclosed foreign assets are bank accounts having an aggregate balance of less than Rs. 5,00,000/-, then the penalty cannot be imposed. Section 49 details prosecution in the case the return itself is not filed. Section 50 describes criminal prosecution for the non-disclosure of foreign assets in the income tax return.
This prosecution may be initiated regardless of the proceedings for the levy of the black money tax. Furthermore, Section 51 describes criminal prosecution for evading black money tax, which are initiated under the proceedings of the levy of black money tax under Section 10.
If black money tax is paid on certain income/assets, income tax under the Income Tax Act is not required to be paid on the said income/asset given Section 4(3) of the Black Money Act. However, a similar provision does not exist in the Income Tax Act. Thus, if income tax is paid under the Income Tax Act on any undisclosed foreign income/asset, the said income/asset may still be taxed under the Black Money Act.
Section 3(1) of the BMA states that the black money tax is levied from the year 2016-17. Thus, the following would be a correct categorisation for interpreting and understanding the applicability of the Act.
- Receipts by any person till June 30th, 2015 (Pre-BMA receipts).
- Receipts by such person on or after July 1st, 2015 (Post-BMA receipts).
Section 72(c) of the Black Money Act details that assets acquired before enactment are considered as accepted in the year in which the assessing officer detects the assets and issues a notice under Section 10 of the Black Money Act. Thus, this provision renders the applicability of the Act retrospective.
The Black Money Act prescribes penalties for tax evasion and other adverse implications related to ‘undisclosed foreign income and assets’.
If a person has any revenue from a source outside India and does not disclose the same in his return of income, the Black Money Act would be applicable. The second element covers unknown assets outside India has been described in Section 2(11) to mean assets outside India for which the owner has no adequate reason. The Black Money Act applies to unknown revenue from sources outside India or unexplained assets outside India. Only persons who are tax residents of India are under consideration.
What is Black Money Challan?
The Government notified the Challan number/ITNS – 284 for filing of taxes, penalties, interests. The Ministry of Finance informed the compliance window to be September 30th, 2015, on or before which a person could make the declaration under the Act. The last date was provided to be December 31 2015 for payment of the tax and penalties for such declared assets or income.
The ITNS – 284 is similar to ITNS – 280 and ITNS – 281 and is used for paying the Income Tax and Tax Deducted at Source, respectively.
This information is required for the newly notified challan
- Assessment Year.
- Taxes on businesses or taxes other than companies.
- Permanent account number (PAN).
- Full name.
- Complete the address along with city and state and pin code.
- Type of Payment: Head -109 if paid by the company/Head -108 if paid by other than the company.
- Amount of Income-tax / Interest / Penalty / Others.
Origins of Black Money
Black money is antisocial and gained from activities such as crime and corruption and may include racketeering, production, and trade of narcotics as well as trafficking of counterfeit and contraband goods, forgery, smuggling, illegal mining, illegal deforestation, illicit liquor trade, human trafficking, kidnapping, robbery, sexual exploitation and prostitution, financial fraud, embezzlement, drug money, cheating, bank frauds, and illegal trade of arms.
The Prevention of Money Laundering Act 2002 includes most of these offences. Corruption and theft by people holding public office is also considered under this act. These actions are unlawful and an outcome of human greed combined with diminishing societal norms and incapability of state to control them. Factors leading to their generation are both administrative and societal.
Effects of the Black Money Act
The Black Money Act was legislated to crack down on undisclosed assets and foreign income. Till May 31st, 2021, under various sections of the BMA 2015, rulings were passed on 166 cases. Subsequently, the act detected Rs. 8.216 crore from various violations of this Act in the form of non-disclosure of assets and foreign income.
A total of 107 prosecution complaints were filed with black money stashed abroad under the Act. The Black Money law has enabled the Government to detect unknown revenue of Rs 11,010 crore approximately, in relation to the ICIJ cases. A credit of Rs 20,078 crore was detected in the Panama Papers expose. Therefore, an illegal transaction of Rs 246 crore was tracked down.
Challenges Under the Black Money Act
The Black Money Act provisioned a one-time compliance opportunity to declare their undisclosed foreign assets and income. However, the order raised several concerns of whether the Government could exercise powers under a statute that had yet to be enacted. The retrospective application of the Black Money Act was also scrutinised.
The validity of this order was challenged before the Delhi High Court in Gautam Khaitan v. Union of India and Ors. The court ruled that the Central Government could not have exercised powers under the provisions of a statute that had yet to be enacted. This interim order was challenged again before the Apex Court. The Court overturned this and enabled assessees to take advantage of the one-time compliance opportunity.
Under the black Money Act, a rebuttable assumption of culpable mens rea should be identified. The accused had to prove the absence of men’s rea beyond a reasonable doubt. However, the courts previously upheld the validity of the presumption of mens rea under the I.T. Act. Challenges against the idea under the Black Money Act may not prevail.
Penalties Under the Black Money Act
The penalties under the Act of 2015 have been covered under Chapter IV. Section 41 details that in the case in which assessment is performed under Section 10, the Assessment Officer may decree that the assessee shall be liable to pay the penalty of three times the tax, that is, 90%. Unlike the I.T. Act, a flat rate of fine is prescribed under this Act. Section 42 states that if any person who has any foreign income or holds any foreign asset cannot furnish any Income-tax return under the I.T. Act 1961 before the end of the Assessment Year, then the Assessment Officer may impose a penalty of Rs. 10 lakhs.
According to Section 43, if any person who holds any foreign income or has any foreign assets cannot furnish any information on foreign assets or if the furnished returns are inaccurate even though he/she files his/her return, the Assessment Officer may levy a penalty of Rs 10 lakhs. Under Section 44(1), the Assessee shall be liable for the fine, even if he has paid the tax before the levy of such penalty.
Section 45 provides if the Assessee, without reasonable cause, fails to
- Answer as many questions put to him by the Assessment Officer.
- Sign any statement made by him in the due course of any proceedings.
- Produce books of account or documents and attend at the place or time in response to summons issued under Section 8.
Then the person shall be charged with a penalty, with a minimum of Rs. 50,000, which may extend to Rs. 2 lakhs.
An order holding a person liable for a penalty shall be passed before 1 year from the end of the Financial Year in which notice of the fine is issued.
Black money has been a pertinent problem in the Indian economy. In 2009, Ram Jethmalani, Senior Advocate, filed a petition before the Supreme Court of India presenting the problem of funds being syphoned from India to abroad and non-disclosure of money to authorities in India. The Black Money (Unknown Foreign Income and Assets) Act and the Imposition of Tax Act 2015 was initiated to address these problems.
Although the Black Money Act was passed to curb the menace of black money, the Act remains ineffective. Additionally, the constitutionality and propriety of specific provisions of the Black Money Act are under scrutiny.
The act achieved limited success in the repatriation of unlawfully collected accounts from overseas. Authorities have focused on prosecuting and punishing offenders. Wilful evasion of tax is a scheduled offence under the Prevention of Money Laundering Act, 2002. Only 648 statements involving unknown foreign assets worth over Rs 41 billion were made. A worth of about INR 24.7 billions was accumulated by taxes and fines. Based on conventional estimations of unaccounted Indian assets abroad, this is a very limited amount.
FAQs About Black Money Act
Who is covered under Black Money Act?
Individuals and Hindu Undivided Families (HUF) who qualify as a Resident and Ordinarily Resident (ROR) are covered under this act. Furthermore, Partnership firms, LLPs, Companies, or any other persons who qualify as residents during a financial year for income tax purposes, are covered under the Act.
Is Black Money Act applicable to retrospective returns?
Yes, no limitation period is mentioned, and it includes all earlier years as well.
Is Black Money Act applicable to a non-Indian citizen?
Yes, the Black Money Act is applicable to all individuals who qualify as RORs, regardless of their nationality.
Is there any limit to the applicability of the Black Money Act?
There is no threshold defined on income or assets for the application of the Black Money Act.