DECEMBER 30, 2024

By Pratap Singh, IRS

BRINGING back the Foreign Black Money stashed in foreign shores, in Swiss Banks and HSBC Bank accounts, was a hotly debated topic in 2014 Parliamentary Elections. Post elections, a Special Investigation Team (SIT) was constituted under monitoring of Supreme Court and led by the Chairman CBDT, with ED, CBI, RBI and other agencies being part of it, for the inter-agency co-ordination and to identify the Foreign Black Money and to find ways and means for bringing such income to tax. Only recently names of several Indians appeared in Panama Paper leaks and Paradise Papers, and there was a widely held view that many people were not reporting foreign income / assets, because there was no stringent mechanism of punishment for non-reporting of such income, necessitating a law. After further deliberations, a new legislation, 'Black Money (undisclosed foreign income and assets) and Imposition of Tax Act, 2015' also called as Black Money Act was enacted to take care of such foreign income or assets. The Black Money Act lays down the legal frame work for penalties and prosecution. Section 42 of this new Act lays down a detailed frame work of imposition of penalties up to Rs. 10 lakhs for failure to furnish tax return in relation to foreign income or assets. There is also a provision of prosecuting such persons up to seven years of imprisonment. So far, actions under Black Money Act has been completed in thousands of cases and significant income has been brought to tax. However, as per the latest information (Year 2023-24), 4.6 lakhs people still did not fill in 'FA' schedule in their tax returns, even though they had foreign income or assets. The CRS data shared by the CBDT with the field formation also indicate large scale violations in this regard.

In fact with the globalization of economy, transfer of money internationally or acquiring assets has become very easy. Therefore, Global co-operation has become essential in sharing the information about such assets or incomes and tackling consequent tax evasion. It is seen that many tax evaders move their assets to jurisdictions with lax tax laws to avoid taxes in their home country. The UN has been working to create a frame work convention on the international tax co-operation that will ensure all countries have a say in setting the rules. Countries can exchange information on tax payers including cross border transactions and foreign assets. The OECD Common Reporting Standard - CRS is an example of this, where tax authority automatically exchange information with each other.

OECD has recently amended Common Reporting Standards (CRS), as part of global effort to check tax evasion, with effective enforcement and sharing of information. So, it will be very difficult for anyone now to hide such income or assets, acquired abroad. In the circumstances of omission and detection by tax authorities, the consequences are going to be serious, as provisions of the Black Money Act, 2015 will be applicable. With a view to enable the tax payers to disclose such foreign income and assets, a new schedule 'FA' has been introduced in the Income-tax return. Every person who is the owner or the beneficial owner of any foreign assets or income is supposed to declare such assets or income in this FA Schedule of the Income-tax return.

With a view to spread awareness and to educate the tax payers with the provisions of Black Money Act, especially the 'FA Schedule', the CBDT has launched a campaign to ensure that the tax payers accurately report their foreign assets and foreign source of income in their ITRs. The tax payers who failed to report such incomes in the current year could still do so by filing revised returns up to 31.12.2024. Though, there has been substantial increase in the people filling in FA Schedule, from 60000 in A.Y 2022-23 to over 2 lakhs tax payers in the current year, but still a lot of people are not filling in the Schedule correctly. In fact, Search & Seizure and other enforcement actions have detected Foreign assets / income over Rs.700 crores. It is also gathered by the Income-tax Department that many employees of Indian Companies, temporarily stationed abroad, have not filled in FA/FSI schedule of the tax return. This is the reason that the CBDT has asked the field formations to carry out outreach programmes, with a view to explain the provisions of the said Act, especially the criticality of filling out the FA Schedule for reporting Foreign Assets and Income.

It is also seen that many resident Indians before relocating to India, may have stayed abroad and may have some bank accounts or properties abroad. Similarly, there may be employees of Indian companies stationed abroad on short term contracts and may have some bank accounts in foreign countries. These people need to be careful about reporting such accounts or properties in tax return.

The declaration of Foreign Assets by resident Indians having foreign income or assets like bank accounts, stocks / shares of foreign companies, immovable properties, beneficial share and interest which control other income or assets etc in 'FA' Schedule is vital for adhering to Tax laws, as it promotes transparency, addresses the issues of unreported foreign income and helps preventing tax evasion. Non-compliance or incomplete disclosures can lead to serious repercussions, including penalties up to Rs. 10 lakhs and prosecution up to seven years, besides scrutiny from tax authorities, issuance of notices to such persons, based on the information received.

(The views expressed are that of the author and not necessarily of the Department)