Background:

The Central Government, on May 26, 2015, had enacted the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (the "Black Money Act") to deal with undisclosed assets held abroad, acquired from income otherwise liable to be disclosed and chargeable to tax in India, by providing for a separate taxation mechanism.

Enabling RBI regulatory framework for dealing with undisclosed assets held abroad:

Pursuant to the Black Money Act, in respect of undisclosed assets held abroad by a person resident in India for which, inter alia, applicable taxes and penalties have been paid under the Black Money Act, the RBI has now issued (and notified) the Foreign Exchange Management (Regularization of assets held abroad by a person resident in India) Regulations, 2015 (the "FEMA Undisclosed Assets Regularization Regulations, 2015") with a view to provide an enabling regulatory framework for regularization of contraventions occurred under the Foreign Exchange Management Act, 1999 (the "FEMA") in the process of acquiring such undisclosed assets abroad.

Pertinent provisions under the FEMA Undisclosed Assets Regularization Regulations, 2015:

  • Immunity to proceedings under the FEMA has been granted in respect of undisclosed assets held abroad for which, inter alia, tax and penalty has been paid under the Black Money Act; and
  • From a period within 180 days from date of declaration of undisclosed assets under Black Money Act-

  • (i) without RBI approval, such an asset can be disposed off and proceeds thereof to be brought back to India through normal banking channels; or

    (ii) apply for RBI approval under FEMA and/or regulations made thereunder, wherever applicable, if such an asset is sought to be held abroad. In the event, the RBI approval is not granted, such asset would have to be disposed off within 180 days from date of receipt of RBI denial (or any extension of period of 180 days, if permitted) and proceeds thereof be brought back to India through normal banking channels.

Conclusion:

It can be concluded, broadly, the FEMA Undisclosed Assets Regularization Regulations, 2015 is a shot in the arm for persons/entities in violation of FEMA regulations, wherein heavy penalties are otherwise imposed for contraventions (even imprisonment, confiscation of assets in certain cases) and cumbersome Enforcement Directorate investigations/proceedings to be dealt with and, therefore, be in compliance thereof and put an end to the undisclosed assets abroad issue, permanently.

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