Many NRIs (specifically Returning NRIs), Foreign Citizens (OCIs, PIOs, Others), who either returned back to India or come to India for a long duration of time, become Tax Resident in India as per Income Tax Provisions of India. Once these NRIs, Foreign Citizens become Tax Residents in India, they are liable for disclosure of Foreign Assets and Income in Indian ITR. On failing to do so, they attract the tax provisions and also very burdensome provisions of Black Money Act. Hence, it is very important to understand the provisions of Black Money Act, Foreign Assets and Income Disclosure and its Implications on Returning NRIs/Other Tax Residents.
Requirement Disclosure of Foreign Assets In ITR
- As per the Indian tax laws, every ordinary tax resident individual owns any Foreign Assets like Bank Account, Foreign Shares, Foreign Mutual Funds, Immovable Property Outside India or any other Foreign Asset, then it is mandatory for such individual to fill the information in schedule FA while filing his ITR.
- If an individual has invested in any foreign assets (being shares or mutual funds in a foreign company, etc.) directly or holds stock options (ESOPs) of foreign companies, then it is mandatory for such individual to fill schedule FA of his ITR.
- An individual needs to file both schedule FA and schedule VDA (Virtual Digital Assets) where he has purchased VDAs from international exchanges and also storing them in foreign wallets.
What is The Black Money Act?
- Black Money Act full name is Black Money (Undisclosed Income and Assets) and Imposition of Tax Act, 2015. This Act has come into force in 2015. However, in recent 2-3 years, the tax authorities (Foreign Assets Investigation Unit ‘FAIU’), who are entrusted to investigate and implement the proceedings of Black Money Act, has started sending notices for non-compliances of this Act.
- Section 43 of Black Money Act provide for penalty for non-disclosure of foreign assets detail in ITR.
- Its provisions are applicable on Resident Individual i.e. Individual who is ordinary tax Resident of India.
- As per this provision, it is mandatory to provide information of foreign assets outside India while filing the ITR.
- Failure to disclose foreign assets in ITR – Straight penalty of Rs 10 Lacs per defaulting year i.e. the year in which the foreign assets were not reported in ITR. If non-disclosure is in more than one year, then Assessing Officer can levy penalty for each defaulting year.
- Further to above, section 3 of Black Money Act provides for levy of tax on undisclosed Income or Foreign Asset. It provides straight tax @30% on undisclosed Income or Foreign Asset.
- Further, as per section 41 of Black Money Act, if there is any taxes levied under this Act on undisclosed income or Foreign assets, then a penalty of three times of that tax shall be levied as penalty. Hence, if any amount is found undisclosed under this Act proceedings, then total of 120% (30% plus 3 times of that amount) of that amount is payable under this Act.
Foreign Assets Investigation Unit (FAIU) – Proceedings To Investigate Foreign Assets Transactions
- Income Tax Department has set up a separate department in all major cities to investigate the Foreign Assets Transactions. It is named as Foreign Assets Investigation Unit (FAIU). It is headed by an officer of Deputy Director of Income Tax (DDIT).
- The FAIU Deptt receives data from various sources (including foreign country income tax department under the agreement with that country for information exchange).
- When this department has reasons to believe that Foreign Assets information is not disclosed or disclosed incompletely/inaccurately, the FAIU Office issues summon under section 131 of Income Tax Act to initiate the investigation to enquire it.
- On receipt of the information the FAIU office prepares a report and submit to its senior authorities and on their approval, FAIU finalizes its findings.
- Lot of NRIs/OCIs are also receiving notices u/s 131. Reason for this is, FAIU gets foreign assets information however there is no ITR filed by these NRIs/OCIs, which gives reason to FAIU office to initiate an enquiry. Hence, for NRIs/OCIs, ITR filing is helpful to avoid this summon or other type of notices.
- If there are negative findings then proceedings of Black Money (Undisclosed Income and Assets) and Imposition of Tax Act, 2015 are initiated by this office to levy & collect penalty and taxes.
Frequent Asked Questions (FAQs) on Foreign Asset Disclosures, Black Money Act, Tax Implications on Returning NRIs/Foreign Citizens
Question – Who is required to submit Foreign Assets detail in ITR? Whether NRIs are required to submit Foreign Assets detail in ITR?
Ans – An Individual, who is Resident in India and an Ordinary Resident, is required to file foreign assets detail in the FA Schedule of ITR form. This is not mandatory for NRIs or OCIs who are living & working abroad, and who are Non-resident in India as per Indian tax laws. However, those NRIs/OCIs, who return back to India and becomes Ordinary Resident in India, are required to submit foreign asset details in their ITR form.
Question – If a Returning NRI/OCI does not have any taxable income in India, whether he/she is required to submit Foreign Assets Detail in ITR?
Ans – A returning NRIs/OCIs may maintain his status as Not Ordinary Resident for 2-3 years after returning back to India. To the extent he/she is Non-resident or Not Ordinary Resident, there is no requirement of submitting Foreign Asset details. Hence, ITR is also not mandatory. Once he/she becomes an Ordinary Resident, their Foreign Assets as well Foreign Income will also be incorporated in the Indian ITR. Hence, ITR filing is mandatory in that case. Also, it is important to understand that for a continuous track record as well avoiding various Income tax automated enquiries, ITR filing is important and beneficial.
Question – Whether NRIs or OCIs are also liable to Tax Deptt for their Foreign Assets?
Ans – Though provisions of foreign asset disclosures are not applicable to NRIs/OCIs living abroad. However, Inc Tax Deptt (FAIU) gets information from the tax offices of foreign countries (under mutual information exchange clause of Tax Agreements between countries) and also some other sources. Hence, when there is no ITR filied by these NRIs/OCIs, then to confirm a non-compliance, FAIU issues notice to NRIs/OCIs also. Hence, it is advisable for NRIs/OCIs that they file ITR in India to submit their non-resident status with the Tax Department.
Question – Is there any exception/exemption of Foreign Assets Disclosure under Black Money Act?
Ans – If an individual has a foreign bank account(s) and balance in aggregate of all said foreign bank account(s) does not exceed Rs 5 Lakh, then penalty under section 43 of the Black Money Act cannot be imposed even if such bank account was not declared in schedule FA.
Question – What is the ruling of Mumbai Income Tax Appellate Tribunal in relation to penalty under Black Money Act?
Ans – Mumbai ITAT has following obsservations in case of Shobha Harish Thawani v. JCIT (Taxpayer)
Facts of the case
Assessee had declared interest income from foreign investment in AY 2016-17 and when this asset was sold, the capital gain was also offered to tax in AY 2019-20. However, the Assessee failed to disclose this foreign asset in schedule FA while filing the ITR for AY 2016-17 to 2018-19.
Accordingly, the Assessing Officer (AO), under the Black Money Act 2015, levied a penalty towards this non-disclosure. On appeal, the CIT(A) upheld this levying of penalty. The aggrieved then filed an appeal before the Tribunal.
ITAT Held
- Section 43 of Black Money Act, 2015 levies penalty for failure to furnish information or furnishing inaccurate information about a foreign asset in the ITR.
- Section applicable on Resident or Ordinarily Resident Person
- The said disclosure is to be made in schedule FA of the relevant ITR
- Foreign asset includes any asset held by the Assessee as a beneficial owner or otherwise
- Since the Assessee failed to disclosed foreign asset in schedule FA of ITR, hence this penalty was rightly levied.
- Then the Assessee contented that the word used in the section is that the ‘AO “may” levy penalty’, accordingly this penalty is not mandatory but is at the discretion of the AO.
- It was held that the Assessee failed to substantiate that the AO has extravagantly exercised his discretion and that the AO levied penalty judiciously after duly examining the facts of the case. Further, there was no evidence to prove the penalty arbitrary and unjustified.
- Provisions of Section 43 provides for levy of penalty in case of non-disclosure of foreign assets in schedule FA and accordingly, does not leave any scope for not levying penalty even if foreign asset is disclosed in books