Black Money Act 2.0: Government Panel to Review Law, Look for Measures to Align it with I-T Act

The government has initiated a review of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, widely known as the Black Money Act (BMA), nearly a decade after its implementation. The review aims to address the current challenges in its enforcement, align the law more close with the Income Tax Act, and improve the handling of data on undisclosed foreign assets.

What is the Black Money Act?

The Black Money Act came into effect on July 1, 2015 and was introduced by the Bharatiya Janata Party (BJP) government. The Act aims to curb the problem of black money by targeting undisclosed foreign income and assets. It lays down the procedure for assessing and taxing such undisclosed assets and provides for strict penalties and prosecution for non-disclosure.

However, despite the clauses and stringent implementation, the BMA failed to meet its expectations and objectives, according to reports by The Economic Times.  

Who Is Reviewing the Act?

The committee is being headed by Amal Pusp, Principal Chief Commissioner of Income Tax for Uttar Pradesh (East) region. A parallel internal committee, chaired by Chief Commissioner Jayaram Raipura will assess ways to improve the quality of scrutiny assessments, according to a report by ET.

 The review committee examine areas of convergence and divergence between the statute and the Income Tax Act. The move aims to play out various scenarios of taxability and their legalities, points of conflict with Income Tax regulations, challenges invoking the BMA, and the rightful handling of data received from abroad.

An official familiar with the matter told ET that views and suggestions from senior tax practitioners are being sought by the panel and it is likely to reassess stringent clauses in the law that prescribes penalties prescribed under the Income Tax Act. The panel will also review the BMA’s prescribed prosecution proceedings for failing to disclose an overseas asset.

The Black Money Act vs The Income Tax Act

One of the striking features of the BMA is its retrospective applicability. The BMA has empowered the Income Tax department to investigate undisclosed foreign assets acquired decades ago but are only discovered now. Under the Act the year of discovery is treated as the year of income, enabling tax enforcement regardless of when the asset was created.

In Terms of Penalties

Under the Income Tax Act, the tax officer can reopen cases up to five years to pull up a taxpayer if he/she is suspected to have escaped income worth ₹50 lakh and up to three if the income is less than ₹50 lakh. However, the BMA can also be invoked retrospectively, meaning the department can probe an income generated or assets created even before the law was enforced.

Moreover, unlike a total of 90% penalty under the Income Tax Act, the BMA has an additional 30% tax, leading to a sweeping 120% of the value undisclosed assets on a taxpayer. The BMA can also punish a tax payer for even non-disclosure of foreign assets. If the tax payable by an individual is ascertained under the BMA, it is also considered a scheduled offence under the Prevention of Money Laundering Act (PMLA).

What Changed in Budget 2024?

The Act was last amended in the Union Budget 2024, which proposed changes to the provisions of the BMA—particularly Sections 42 and 43—to exempt cases where the aggregate value of undisclosed foreign assets does not exceed ₹20 lakh from the applicability of these clauses. Section 42 of the BMA provides for a penalty for failure to provide details of foreign income and assets in the return of income. Section 43 of the Act provides for penalty for failure to provide details in return of income, inaccurate particulars about an asset located outside India.

How Much Has the Government Recovered Under the Black Money Act?

In the last 10 years, the government has recovered ₹35,104 crore under the Black Money Act, Minister of State for Finance Pankaj Chaudhary announced in July. However amount raised by the government in the form of tax, penalty and interest under the Act was just at ₹338 crore as of March 31, along with 163 prosecution complains. According to report by the Press Trust of India, Indian money in Swiss banks have  more than tripled last year and stood at 3.5 billion Swiss francs (₹37,600 crore) on the back of a spike in funds held through local branches and other financial institutions.

Way Forward for the Black Money Act

The government’s decision to review the stringent Black Money Act marks a pragmatic approach towards curbing undisclosed foreign assets. The Black Money Act 2.0 will likely be implemented in a more balanced, practical nuance, aligning with existing tax structures while also maintaining its core objective in curbing offshore tax evasion.