Transparency Today, Security Tomorrow
"अविद्या हि सर्वविनाशाय" – Ignorance leads to destruction. The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 ("Black Money Act") was enacted to curb undisclosed foreign assets and income, ensuring tax compliance and preventing money laundering. Given the stringent penalties and prosecution risks, full compliance is imperative. This guidance note provides a detailed professional overview of disclosure requirements, penalties, liability of legal heirs, and remedial actions available as of March 2025, with references to recent amendments, judicial precedents, and official circulars.
Disclosure Requirements in ITR
Under the Black Money Act and Income Tax Act, resident individuals, Hindu Undivided Families (HUFs), and entities such as companies, firms, and trusts must disclose foreign assets and income in their Income Tax Returns (ITR) under the "Schedule FA" section. Legal heirs and executors must ensure compliance if the deceased had undisclosed foreign assets, as they may inherit tax liabilities associated with such assets.
Types of Foreign Assets to be Disclosed
Taxpayers are required to disclose the following categories of foreign assets:
Bank Accounts: Including dormant accounts, joint accounts, and any offshore deposits.
Investments: Shares, bonds, mutual funds, or any other securities held abroad.
Real Estate: Properties owned, either directly or through a foreign entity.
Beneficial Interests: Holding assets indirectly through foreign trusts, foundations, or companies.
Foreign Insurance Policies: Any life or general insurance policies held outside India.
Non-disclosure of any of the above, even inadvertently, can attract severe penalties under the Black Money Act.
Penalties for Non-Disclosure
Under the Black Money Act
Failure to disclose foreign assets or income in ITR attracts the following penalties:
Penalty of ₹10 lakh per undisclosed asset.
Penalty up to 300% of the tax due for misreporting foreign income.
Tax at 30% plus a 90% penalty, totaling 120% of the value of undisclosed assets.
Failure to file ITR despite holding foreign assets: ₹10 lakh penalty plus possible prosecution.
Prosecution risk: Imprisonment of 3 to 10 years for deliberate tax evasion on foreign assets.
For Legal Heirs & Executors
Legal heirs are not penalized for inheriting disclosed foreign assets, but if assets were undisclosed, they inherit the tax liability associated with them. While prosecution may not apply to legal heirs for non-disclosure by the deceased, active concealment of such assets can lead to penalties and legal consequences. If a deceased taxpayer was penalized before passing, no additional penalties apply to the heirs.
Remedial Actions Available
If non-disclosure of foreign assets was unintentional, taxpayers can file an Updated ITR (ITR-U) under Section 139(8A) within 24 months of the relevant assessment year’s end. Filing within 12 months incurs an additional 25% tax, increasing to 50% if filed after 12 months. Legal heirs can also use ITR-U to rectify non-disclosures of deceased taxpayers.
Taxpayers can voluntarily disclose foreign assets before receiving any notice, reducing penalties and avoiding prosecution risks. This ensures lower interest charges. Legal heirs inheriting undisclosed foreign assets can also voluntarily disclose them to limit liability.
If penalized, appeals can be filed under the Income Tax Act or Black Money Act before CIT(A), ITAT, or the High Court. Courts have provided relief where taxpayers demonstrated bona fide intent, incorrect classification, or procedural lapses. Recent case law in 2024 has highlighted instances where taxpayers successfully challenged excessive penalties.
Legal heirs facing tax liabilities from inherited foreign assets can approach the Income Tax Settlement Commission for a one-time settlement, avoiding prolonged litigation and prosecution risks. In a 2024 ruling, the Commission allowed a deceased taxpayer’s estate to settle offshore asset disclosures with a reduced penalty.
First-time offenders may seek compounding of offenses under Section 279 of the Income Tax Act, requiring full disclosure, payment of outstanding dues, and a formal application. A 2025 CBDT circular has introduced updated guidelines allowing faster processing of compounding applications.
For taxpayers who have already paid tax on foreign income abroad, Double Taxation Avoidance Agreements (DTAA) allow claiming Foreign Tax Credit (FTC) to prevent double taxation. Maintaining foreign tax payment proof and submitting Form 67 within the due date is crucial. The 2025 Budget introduced clarifications for FTC claims by taxpayers holding multiple foreign assets.
Precautionary Measures to Avoid Future Non-Compliance
Maintain Records: Retain account statements, property deeds, investment documents for a minimum of 10 years.
Timely ITR Filing: Ensure annual disclosure of foreign assets in ITR to avoid penalties.
Track Compliance Obligations: Monitor reporting requirements under FEMA, RBI, and the Income Tax Act.
Use Legal Channels for Remittances: Avoid using offshore structures or shell companies to hold foreign assets.
Conclusion
"सत्यं वद, धर्मं चर" – Speak the truth, follow the law. The Black Money Act enforces stringent compliance measures on undisclosed foreign income and assets, making voluntary disclosure and corrective actions essential. Taxpayers, including legal heirs, must proactively comply with tax laws to avoid penalties and prosecution. With remedial mechanisms such as ITR-U, voluntary disclosure, and compounding, individuals can rectify past non-compliance and ensure lawful financial transactions in 2025 and beyond.
