India: India Cracks Down On Black Money

Last Updated: 2 April 2015
Article by Megha Ramani and Rajesh Simhan
  • Following a Budgetary promise, the Undisclosed Foreign Income and Assets (Imposition of Tax) Bill, 2015 is introduced to tax foreign undisclosed income and assets of tax residents of India.
  • Non-disclosure of foreign income and assets is chargeable to 30% tax with a penalty of three times the tax due and rigorous imprisonment of between 3-10 years.
  • A one-time short compliance window has been provided for taxpayers to come clean. Tax and penalty are payable but there is immunity from prosecution.

Buoyed with the recent success in obtaining information from Swiss authorities on undisclosed accounts of Indians in Swiss banks, the Finance Minister had proposed in the Budget (announced on 28 February) that he would introduce a Bill in the ongoing Parliamentary session to deal solely with offshore black money. This led to the 'The Undisclosed Foreign Income and Assets (Imposition of Tax) Bill, 2015' ("UFIA Bill"), whose key features are the subject of this Hotline.

The UFIA Bill is to take effect from 1 April 2016, i.e. from the financial year 1 April 2015- 31 March 2016. It has been conceptualized as a separate tax regime, independent of the ITA but to operate alongside with it in their respective spheres. Key features are examined below:


This Bill applies to a person: (i) who is a tax resident of India as per the tests of the Income Tax Act, 1961 ("ITA"); (ii) who is not a person who is a 'resident but not ordinarily resident' 1; and (iii) by whom tax is payable under the UFIA Bill on undisclosed foreign income and assets or any other sum of money.

The term 'person' is not defined in the UFIA Bill so its definition under the ITA must be adopted. As regards individuals, the ITA has a day-count test of physical stay in India. For companies, the test is whether the company is incorporated in India or is wholly controlled and managed within India. The Finance Bill 2015 has proposed to replace this with the standard of 'place of effective management' (POEM). A foreign company will be considered tax resident in India if its POEM is in India at any time in the relevant financial year. POEM has been defined to mean "a place where key management and commercial decisions that are necessary for the conduct of the business of an entity as a whole are, in substance made". There is still not enough clarity on what would constitute the place where "key management decisions are in substance made" i.e. whether the residence of directors will be looked at, location of board meetings or other criteria s uch as expansive veto rights by I ndian resident shareholders. If POEM does become the test for corporate residence in the ITA going forward, the impact of the UFIA Bill may have a wider scope than intended.

The UFIA Bill imposes personal liability on manager (including a managing director) of a company to pay any amount due under the UFIA if the amount is not recoverable from the company. Partners in a partnership, members of an Association of Persons (AoPs) or of a Body of Individuals (BoI) have been made liable to pay any amount due under the UFIA Bill along with the partnership, AoP or BoI.

The UFIA Bill imposes liability for abetting or inducing another to willfully attempt to evade tax or to make false statements/declarations in relation to foreign income and assets. The objective of this provision is to target professional advisors such as private banks, accountants, lawyers and other consultants whose actions may potentially be covered under 'abetment or inducement'. This move is a good means to make the UFIA Bill comprehensive in its scope. That said, it is bound to cause concern among practitioners as there is no clear guidance on what precautions or due diligence will be sufficient to indicate practitioners acted within their rights or that they did not beach their code of conduct. Imposition of such liability on professional advisors and intermediaries may adversely affect onboarding of Indian clients while practitioners may apprehend the risk of undue harassment at the hands of Revenue officials.


The UFIA Bill covers undisclosed foreign income and assets ("UFIA") which means the total amount of undisclosed income from a source located outside India ("UFI") and the value of an undisclosed asset located outside India ("UFA").

UFI encompasses foreign income: (i) which has not been disclosed under applicable tax returns under the ITA or (ii) for which a tax return should have been filed under the ITA but was not filed. UFA refers to an asset (including financial interest in any entity) located outside India, held by a taxpayer in his name or in respect of which he is a beneficial owner and he has no explanation about the source of investment in such asset or his explanation is not to the satisfaction of the Revenue.

However, UFAs being one or more bank accounts having a maximum aggregate balance (at any time during a previous year) of INR500,000 (INR 5 lakh) will be excluded from the purview of this Bill.

Unfortunately, the UFIA Bill does not explain what 'financial interest in any entity' means. The ITA has made it mandatory on residents to disclose such interest in applicable tax returns. Neither the ITA nor the Income Tax Rules define this phrase. Guidance may be taken from the Instructions accompanying the tax returns. The Instructions provide an illustrative (and not exhaustive) list1. Of this list, the entry on beneficial interest in a trust requires more clarity. Neither the ITA nor the UFIA Bill explain the nature and extent of disclosure liability on beneficiaries of foreign d iscretionary trusts. In many instances, individuals are not aware they have been named beneficiaries especially in the case of testamentary trusts. Imposing a mandatory disclosure requirement in such cases will end up causing hardship. The Bill does not specify whether mere knowledge that one is eligible to be a beneficiary of a trust is sufficient. There is also no clarity on reporting in respect of those with reversionary interests or remainder interests in a trust and at what stage should knowledge of their interest be attributed to them. Until official guidance is issued on these pressing matters, it may cause unintended confusion among taxpayers and defeat the objective of this clean-up exercise.


The total UFIA of an assessee will be chargeable to a flat 30% without allowing any exemption, deduction or set off of carried forward losses regardless of whether those were allowable under the ITA. In addition, a penalty of a sum three times the tax on the UFIA is also payable.

To calculate the value of UFA, income already assessed under the ITA shall be deducted from the value of the UFA if the Revenue is provided satisfactory evidence of such prior assessment. A particular calculation method has been prescribed where the UFA is immoveable property. If the UFA is located outside India, its value shall be brought to tax in the relevant previous year in which such asset comes to the notice of the Revenue.

A practical concern that may come up is whether declarants under the compliance scheme (see further below) or offenders have the ability and resources to pay the large sums involved, especially since tax and penalty is to be calculated on the current price of the asset and not the price at which it was purchased.

The other interest, penalty and imprisonment consequences are listed below:



Failure to furnish return in relation to foreign income and assets

Penalty of INR 1 million (INR 10 lakhs)

Wilful failure to furnish returns in relation to foreign income and assets

Rigorous imprisonment (i.e. with hard labour) between 6 months-7 years and fine

Failure to furnish information in a return or furnishing in accurate asset particulars in a r eturn, in relation to foreign income and assets*

Penalty of INR 1 million (INR 10 lakhs)

Wilful failure to furnish information in a return or furnishing inaccurate asset particulars in a return, in relation to foreign income and assets

Rigorous imprisonment between 6 months-7 years and fine

Default in payment of tax arrears

Penalty equal to the amount of tax arrears

Other defaults such as failure to sign legal statements, provide accounts etc.

Penalty between INR50,000 to INR 200,000 (INR 2 lakhs)

Wilful a ttempt to evade tax, interest or penalty chargeable under the UFIA Bill

Rigorous imprisonment between 3-10 years and fine

Wilful attempt to evade paying tax, interest or penalty chargeable under the UFIA Bill

Rigorous imprisonment between 3 months-3 years and fine

Making a false statement in verification which is known or believed to be false

Rigorous imprisonment between 6 months-7 years and fine

Abetting or inducing another to make a false statement relating to tax payable or to willfully attempt to evade tax, interest or penalty

Rigorous imprisonment between 6 months-7 years and fine

Second and every subsequent offence

Rigorous imprisonment between 3-10 years and fine between INR 0.5 million (INR 5 lakhs)-INR 10 million (INR 1 crore)


Yes, a time limit for completion of assessment and re-assessment has been provided under the UFIA Bill. Once the Revenue has issued a notice to a person for providing information, an order of assessment or re-assessment cannot be made after the expiry of two years from the end of the financial year in which the notice was issued. However, this period shall not include the time taken to receive information under the exchange of information process provided under a tax treaty or exchange of information agreement.


The UFIA Bill presumes that the accused has the required culpable mental state for an offence under the Act. That is, it is presumed that the accused had the intention, motive or knowledge of a fact or belief in, or reason to believe, a fact to commit an act considered an offence under the UFIA Bill. The onus to prove non-culpability beyond reasonable doubt is shifted to the accused. Considering that penal consequences are being imposed, it is a cause of concern that legislators have sought to shift the burden of proof on to the accused.


There is no amnesty scheme under the UFIA Bill because the Supreme Court's verdict in the late 1990s had barred the Government from offering amnesty schemes owing to public interest litigation2 over the Voluntary Disclosure Income Scheme, 1997. Instead, the UFIA Bill offers a one-time disclosure & compliance scheme. It is not an amnesty scheme as there is no immunity from penalty, although there is immunity from prosecution.

The UFIA Bill offers a one-time compliance window for a limited duration of time (period yet to be notified by the Government) for persons to declare their UFAs and pay tax on it (30% of the UFA) together with penalty (equal to the tax). The tax is to be calculated on the value of the UFA (see above as to calculation) as on the date of commencement of the enacted legislation. However, the UFIA Bill also excludes certain persons from availing of this compliance benefit. For instance, where a UFA has been acquired with income chargeable under the ITA and about which the Government has already received information under a tax treaty or in relation to prosecution of an offence under the Prevention of Corruption Act, 1988. It also remains to be seen how the Revenue deals with a declarant under the compliance scheme whose declaration is not accepted, to what extent is such declarant protected from prosecution under the UFIA Bill or other legislations once the Re venue have the necessary informat ion with them.

UFAs that are declared are also exempt from Wealth Tax. Declarants will not be prosecuted under the Bill.

Tax and penalty must be paid (both being non-refundable) and proof of payment must be submitted within the period notified for this purpose. If these steps are done, undisclosed investment in the UFA shall not be included in the total income for the purposes of the ITA. If these steps are not done or if the declaration has a misrepresentation or suppresses facts, the declaration will be considered void.

Declarants are not entitled to make any other declaration under the Bill. If made, it will be considered void. Declarants are also not entitled to reopen any assessment or reassessment or claim any relief in any proceeding in relation to the assessment or reassessment. The contents of the declaration cannot be used in evidence for imposing penalties under any other law or for prosecution under certain legislations specified, for e.g. the ITA, Companies Act, Foreign Exchange Management Act, 1999.


  1. Terms that have been used in the UFIA Bill but not defined in the Bill shall, if defined under the ITA, adopt the ITA definition for the purposes of the UFIA Bill.
  2. If certain conditions are met, income or assets that are caught by the UFIA Bill are excluded from the purview of the taxpayer's total income for the purposes of the IT Act.
  3. The UFIA Bill adopts the same tax administration authorities/structure and their jurisdiction as per the ITA. The appellate process is also similar. The UFIA Bill specifies that appeals before a High Court must be heard by a minimum of two Judges.
  4. All information submitted under the ITA can be used for the purposes of the UFIA Bill.


The Modi Government's commitment to identify and stem the generation of 'black money' was in focus during the Budget with the Finance Minister stating that it was the "first and foremost pillar of his tax proposals". The Government has made good on its promise and if administered correctly, the UFIA Bill may have a deterrent effect too. Safeguards have been provided in the UFIA Bill by requiring mandatory issue of notice to the taxpayer, granting the taxpayer the opportunity to be heard and requiring the Revenue to give reasoned orders in writing and recording them.

The UFIA Bill is comprehensive in its reach, impacting everyone from those returning to India after a stint abroad to those who are in India remitting funds abroad under the Liberalised Remittance Scheme; fund managers having carry structures to corporations having subsidiaries abroad. Considering the vast reach of the Bill and its stringent consequences, it is unfortunate to note that the UFIA Bill does not appear to make a distinction between legal and illegal structures. It would have been helpful if the legislation would have contained more guidance as to distinguishing factors. These could have served as useful reference points for the taxpayers, practitioners and the Revenue. As it stands now, it appears that the UFIA Bill imposes its strict consequences even where the structure has been set up in a legally compliant manner, if there has been a non-disclosure.

The UFIA Bill also proposes to amend the Prevention of Money Laundering Act, 2002 (PMLA) by including the offence of tax evasion as a predicate offence under the PMLA, thus enabling the confiscation of foreign assets unaccounted for and prosecution of persons involved. In the Budget, the Finance Minister had also proposed that the Foreign Exchange Management Act, 1999 be amended to provide that foreign assets held in contravention of the exchange control rules contained in this Act could trigger seizure and confiscation of assets in India of equivalent value. In addition, such contraventions should be punishable with upto 5 years' imprisonment and penalty.

On 21 May 2012, the then Government had released its report titled 'White Paper on Black Money' in which it had discussed amnesty schemes as an option to bring back black money into India. That said, ad hoc measures to crackdown on tax-evaded income sweetened by short voluntary disclosure schemes have been criticized as disincentivising honest taxpayers. The Government-appointed Shome Committee had also recommended that amnesty schemes be scrapped for this reason.3 Instead of clean-up measures, it would be better to address the factors that incentivize people to take funds out of Indi a and retain them abroad. For instance, further relaxation of capital controls (especially for transactions of individuals), greater clarity in tax laws fro m the beginning, efficient dispute resolution and positive engagement of the Revenue with the taxpayers are suggested as more durable measures to encourage a culture of compliance.


1. This applies only to individuals. Generally, non-residents who relocate to India from abroad are considered to be 'resident but not ordinarily resident' for two years from the year in which they relocate.

2. Extract from the Instructions to the tax returns:

"Financial interest would include, but would not be limited to, any of the following:-

(1) if the resident assessee is the owner of record or holder of legal title of any financial account, irrespective of whether he is the beneficiary or not.

(2) if the owner of record or holder of title is one of the following:-

(i) an agent, nominee, attorney or a person acting in some other capacity on behalf of the resident assessee with respect to the entity.

(ii) a corporation in which the resident owns, directly or indirectly, any share or voting power.

(iii) a partnership in which the resident assessee owns, directly or indirectly, an interest in partnership profits or an interest in partnership capital.

(iv) a trust of which the resident has beneficial or ownership interest.

(v) any other entity in which the resident owns, directly or indirectly, any voting power or equity interest or assets or interest in profits.

3. All India Federation of Tax Practitioners v Union of India, (1998) 231 ITR 24 (SC)

4 "Taxpayers keep waiting for amnesty schemes to be announced and take advantage of these schemes to build their capital". The Committee's Third Report to the Government in December 2014,

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions