Even the honest can come under the scrutiny of the Black Money Act.

Those reading this note may consider it as the final opportunity to rectify the errors or disclose the missing income or information in the Income Tax Return (ITR) for the Financial Year 2022-23 (i.e., financial year ending 31st March 2023). Try to put your house in order if messed up in the past, as the last date to file belated returns for said year is 31st December 2023.

One significant omission by resident individual taxpayers is the disclosure of foreign income and assets.

Note: Should Resident but Not Ordinarily Resident (RNOR), Non-Resident Indians (NRI) or OCI declare their foreign income and assets in Indian Income Tax Return? No. The disclosure is to be done by Resident Taxpayers only.

Where to disclose the income and assets?

The foreign assets are to be disclosed under Schedule FA of the Income Tax Return (ITR) and income is to be offered to tax and pay applicable taxes, after taking DTAA benefits, if any.

The foreign assets include Shares, Debentures, Life Insurance policies, 401K pension funds, balance in bank accounts, immovable properties, etc. Likewise, the foreign income includes dividends, capital gain from the sale of shares, interest, rent, etc.

Now the last but the most crucial part of the story! Why is disclosure so important?

Under Black Money (Undisclosed Foreign Income and Assets),2015, if the residents with assets or income from foreign sources fail to declare and disclose in the Income Tax Return, they can be punished with a penalty of Rs.10 Lakhs! Not just that, such persons can be imprisoned for up to 7 years!

To illustrate the importance of disclosure, let me provide an example I recently handled: –

Mr Muttanna, employed in an MNC in Bangalore, received USD 20,000 (the equivalent of Rs. 14,00,000 considering 70 INR per USD) dividends from his US Stock holdings during the financial year 2019; on dividends, 25% is the tax in the US; post taxes USD 15,000 was credited to his US Bank account.

Being a Resident taxpayer, Mr Muttanna was obliged to declare that income in India and take the tax paid in the USA as a tax credit. Effectively, he would not have paid any additional taxes in India, had he declared that income in the Indian ITR for 2019.

However, since he had not declared the income, the tax department sent a notice to Mr. Muttanna asking him to pay the taxes.

As this aspect is covered under the Black Money Act, he has to pay special tax rates – Tax at 30% (Rs.4,20,000) plus a penalty of 3 times the tax amount (Rs.12,60,000) plus Rs.10,00,000 for non-disclosure!

Does this illustration seem like fiction to you? Trust me, this is the current state of many such cases in the tax department.

Conclusion – Please remember this – FOREIGN ASSETS AND INCOME to be declared and disclosed in Income Tax Return by Resident Taxpayers WITHOUT FAIL, to avoid 120% tax on undisclosed income plus Rs.10,00,000 as a penalty.

Your plea that you are an honest salaried taxpayer or ignorant of the black money rules won’t cut the ice among the tax authorities.

For further information on these topics such as exceptions, appeals, etc., please write to prasad@balakrishnaandco.com.

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About B E Kumar Prasad

B E Kumar Prasad
He is a Practicing Chartered Accountant in Bengaluru, India. He has 28+ years of experience in income tax, business setup, and NRI matters. He is also an Insolvency Professional, Registered Valuer (F&SA) and Social Auditor.Prasad welcomes your comments and questions. Please email him at simplifiedlaws20@gmail.com

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