Taxation Of Black Money: What Indian Residents Must Know About Disclosing Foreign Income and Assets

When an Indian resident earns income from abroad — say, from a foreign bank account, property, or investment — that income must be reported and taxed in India under the Income Tax Act, 1961. India follows a “global income” taxation system for residents, meaning that income earned anywhere in the world is taxable in India.

However, some people fail to disclose their foreign income or assets. To deal with such hidden money, the government introduced a separate law in 2015 called the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, often called the Black Money Act.

This law came into force on 1 July 2015. It aims to punish those who hide foreign income or assets by charging 30% tax on the value of the undisclosed foreign asset or income — and also imposing a 90% penalty (three times the tax).
In short:
•    Income Tax Act = covers all income, including foreign income (regular taxation).
•    Black Money Act = applies when foreign income or assets are not disclosed.

Who Is Covered Under the Black Money Act
This law mainly applies to Indian residents.
Even if a person is currently living abroad but was an Indian resident in the year when the foreign asset was acquired or the income was earned, they can still come under this law.

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When the Law Applies
The Act applies from Assessment Year 2016–17 (i.e., income from 1 April 2015 onwards).
However, even if the foreign asset was bought before July 2015 but came to the notice of the tax department later, the authorities can still act under this law.
This “retrospective” power — meaning the law can apply to old assets discovered later — has been controversial.

Some courts (like the Karnataka High Court) have said that criminal action cannot be taken for something that happened before the law existed. The final word on this is still awaited from the Supreme Court.

No Time Limit for Action
Unlike normal income tax cases, the Black Money Act does not specify any time limit for sending a notice.
This means the tax department can reopen cases even after 20 or 30 years if they find evidence of hidden foreign income or assets.

This can be harsh because individuals are normally required to keep records for only a few years:
•    Income Tax Act: 6 years
•    Companies Act: 8 years
Hence, it’s possible that a person may not even have the old records to prove their innocence if a notice comes decades later.

How the Tax Is Calculated
Under this law, tax is charged at 30% of the value of the undisclosed foreign income or asset.
The “value” of an asset means its fair market value (for example, current market price of a property or the balance in a foreign account).
The government has issued separate rules on how to calculate this fair market value.

What Counts as Undisclosed Foreign Income or Asset
This law covers two main situations:
1.    Foreign income not reported — for example, interest earned on a foreign bank account.
2.    Foreign asset not disclosed — such as a property, shares, or bank account abroad.
If a person can explain the source of investment (say, from savings or already taxed income), the asset is not treated as undisclosed.
But if they cannot explain, or the explanation is not satisfactory, it will be considered an undisclosed foreign asset.
Even if the source is explained, failure to report the asset can still invite penalties.

How and Where to Disclose Foreign Assets
Every year, taxpayers must fill in a special section called Schedule FA (Foreign Assets) in their Income Tax Return (ITR).
This is mandatory for residents filing ITR-2 or ITR-3.
It includes details such as:
•    Foreign bank accounts, shares, or investments
•    Property or other assets held abroad
•    Beneficial interests in overseas trusts or companies
•    Any income earned from outside India
Only residents have to give this information — non-residents (NRs) and resident but not ordinarily residents (RNORs) are not required to do so.

If someone forgets to disclose this information, they can:
•    File a revised return before 31 December of the relevant assessment year, or
•    In special cases, request a delay condonation from the Central Board of Direct Taxes (CBDT).
If a case is reopened under Section 148 of the Income Tax Act, disclosures can still be made in that return to avoid prosecution.

Penalties for Non-Disclosure
There are two main penalty sections:
•    Section 42 – For not filing a return at all despite having foreign income or assets.
•    Section 43 – For filing a return but not reporting the foreign income or asset.
The penalty is ₹10 lakh per year.
However, it applies only if the total value of all such assets (excluding property) is more than ₹20 lakh (limit increased from ₹5 lakh in 2024).
Courts have also clarified that penalties should not be imposed for small mistakes or genuine errors.
The Supreme Court in Hindustan Steel Ltd. v. State of Orissa (1972) said that penalties should not be used mechanically — they are meant for deliberate concealment, not honest mistakes.
Similarly, in Leena Gandhi Tiwari v. Addl. CIT (2022), the Mumbai Tribunal held that small or technical lapses, especially without bad intent, should not attract penalties.

Key Takeaways
•    Report all foreign income and assets honestly. Even if there’s no income from them, they must still be disclosed.
•    Keep records safely. Even though the law has no time limit, maintaining digital copies of proofs (like bank statements or investment records) can help.
•    File the correct ITR form (ITR-2 or ITR-3) and fill Schedule FA carefully.
•    Act promptly if you realize a mistake — file a revised return or write to CBDT for condonation.
•    Avoid panic — not every mistake leads to prosecution. The intent and materiality of the error matter.

Conclusion
The Black Money Act was introduced to ensure that Indians disclose and pay taxes on their global wealth. It’s a powerful law with severe consequences, including high penalties and no limitation period.

At the same time, Indian courts have stressed that genuine taxpayers should not be harassed for minor or unintentional lapses.
The best approach is simple — be transparent, file complete returns, and maintain proper records.
Doing so ensures peace of mind and keeps you clear of the heavy penalties and litigation that can arise under the Black Money Act.