What is Black Money?

Money being the medium of transaction in society is present in apparent and hidden form. The apparent form is legal and open for taxation while the second form is not exposed to taxation and is illegal. The unaccounted money that comes through underhand earning of dishonest people is termed as black money or evaded money.

The way in which our economy has been operating and the avoidance of tax had led to concentration of wealth and this has further led to increase of wealth in the hands of few people. This has encouraged more black money, black marketing and smuggling etc.

Black money can be in various forms like shares, bonds, securities, instruments of other forms, real estate houses, shops, plots and other assets like cars, gold, silver, diamonds or jewellery as well.

Now looking at our country, it has been estimated that over 200 Crores of black money is created every year. Corruption and prevailing illegal activities have contributed a large share to this money while avoidance of income and sales tax is one of the biggest means which leads to increase in black money.

About 627 Indians with their accounts in HSBC bank, Geneva; were reported to the Supreme Court by the centre. A special investigation team (SIT) was formed in May comprising of the former SC judge MB Shah and highest level officials from financial and economic departments and law enforcement agencies. SIT was assigned the task of probing tax on suspected black money till March next year. On the same, Prime Minister Narendra Modi plainly declared the prosecution of tax dodgers and enforced on bringing the money stashed in tax havens back to the country.

Under the supervision of SIT, around ` 35,000Crores have already been recovered from some of the account holders. The assessment proceedings will complete the tenure by March 31st and till then, a net worth ` 6500 Crores is expected to be fetched by the department.

France has shared information of half of the 628 Swiss bank accounts with India, which were either legitimate accounts or were held by non-resident Indians. From rest around `10,000 Crores is estimated to be collected after the completion of assessment proceedings.

Compliance window

The compliance window is a part of the new anti-money law passed by Parliament in May and notified on May 26 after the assent given by the President.

What is tax compliance?

The extent to which a taxpayer conforms or fails to conform to the tax rules of his country. It can be done through filing a return, paying the due tax in a timely manner or by declaring income. ‘Compliance window’ to make voluntarily disclosures ended on September 30th this year and there are three categories of people who have been barred from availing this compliance window:

Foreign account holders like those mentioned in HSBC list, against which information has been collected by the government.

Those availing benefits under Double Taxation Avoidance Agreements (DTAAs) and Tax Information Exchange Agreements (TIEA) with foreign countries and jurisdictions.

And those against whom IT-department has initiated proceedings before June 30th or has carried out searches.

Double Taxation Avoidance Agreement (DTAA) is a Tax Treaty. It is basically a bilateral agreement between two nations aiming to eliminate or pass up double taxation of the same income in the two countries.

This 90 day compliance window had disclosures that mentioned about 30% tax and an equivalent of penalty, escaping the criminal prosecution and jail term. The government has received unreported overseas assets of Rs. 4,147 Crores from total 638 disclosures at the end of compliance window on September 30, against the earlier reported disclosure of Rs. 3,770 Crores on October 1.

All the deposits made since opening of bank account will be assessed for totalling the value of a person’s asset, which would also include immovable property, shares and jewellery. The shares and jewellery would be valued at fair market price for tax levying and penalty during the compliance window tenure.

What’s the purpose of this compliance?

It’s a notification provided under The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015; which gives the person with black money a chance to come clean by declaring the undisclosed foreign assets and income.

Under this law, those having hidden foreign wealth would be punished with up to ten years of rigorous imprisonment and would have to pay tax and penalty of 120% of the value of the wealth including its confiscation as well.

The Black Money and Imposition of Tax Act, 2015, which has come into effect from July 1, lends 90-days compliance window. This gives the person having undisclosed foreign assets and income, a chance to come clean by declaring all such assets and paying a total of 60% tax and penalty


In order to allay the fears of taxpayers, the Central Board of Direct Taxes has come out with these sets of guidelines:

In case of disclosure of foreign bank accounts

(a)     For foreign bank account holders, any amount withdrawn from such bank accounts and re-deposited would not be counted. The value for purposes of declaration will only account to the sum of all the deposits made in respective bank accounts.

(b)     Deposits or non-chargeable income tax credits will not be considered for valuation.

(c)     The person can withdraw from his gross deposit to acquire new assets or create deposits in another bank account which is being disclosed.

(d)     If for a certain period, statements of such foreign bank accounts are not available; then the taxpayer has to declare that period on his best estimate basis and obtain a certificate from the bank to show that the details are actually not obtainable. If however later, the estimate made is found to be done despite the availability of bank statements, then the declaration would be treated as void.

(e)     Immunities will not be granted and if the value declared on best-estimate basis is found to be more than the final determination, the excess will not be refundable.

Key take-aways:

Those who would fail to declare their overseas assets would be liable to pay tax and penalty of 120 per cent and would also be facing jail term of around ten years. Those who have already been notified or received notices up to June 30, would not be considered to take advantage of the compliance window.

Indians, against whom information has been received from foreign nations or overseas accounts, will not be eligible for filing declaration under this window.

The tax and penalties can be paid till December 31. The commissioner of income tax (International Tax)-2, New Delhi, has been designated the task of receiving all such declarations.

FEMA, Foreign Exchange Management Act is an act of the Parliament of India, passed in 1999. It aims at facilitating external trade and payments. It also amends the law concerning foreign exchange and helps in promoting foreign exchange market in India.

The declarations of foreign assets for which taxes and penalties need to be paid under the Black Money Act, won’t be facing any proceedings under the FEMA (Foreign Exchange Management Act), 1999. Those waiting to dispose of assets declared and would want to bring back the proceeds through banking channel, would be thereby exempted from prosecution under FEMA.


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