Section 4 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 is a crucial provision that India has implemented to tackle the issue of undisclosed foreign income and assets. This section imposes tax on individuals who have not declared their offshore wealth and provides a framework to penalize such individuals.
Under this provision, any person who is a resident in India and has undisclosed foreign income or assets is liable to pay tax at the rate of 30% on the total undisclosed income. Additionally, a penalty of 90% of the undisclosed income can also be levied. The tax and penalty are to be paid in addition to the regular income tax payable on the individual’s total income.
To ensure compliance with this provision, the Act also empowers the tax authorities to initiate proceedings for assessment or reassessment of the individual’s income and assets. They can issue notices, conduct inquiries, and gather information from various sources to determine the extent of undisclosed foreign income and assets.
To further strengthen this provision, the Act also includes provisions for prosecution. If an individual is found guilty of willful attempt to evade tax, he/she can be punished with rigorous imprisonment ranging from three years to ten years, along with a fine.
Several case laws have emerged that highlight the significance of Section 4 in dealing with undisclosed foreign income and assets. Let’s discuss a few notable cases:
1. Pradip Burman v. Deputy Commissioner of Income Tax (2015): In this case, it was held that even if an individual has paid taxes on his/her foreign income in a foreign country, he/she is still required to disclose it in India and pay taxes accordingly.
2. Gautam Khaitan v. Union of India (2019): The Supreme Court held that the provisions of Section 4 are not violative of Article 20(3) of the Indian Constitution, which protects an individual from self-incrimination. The court stated that the provision only requires disclosure of foreign income and assets, not self-incrimination.
3. Mohan Gupta v. Union of India (2018): The Delhi High Court held that the penalty under Section 4 can be imposed even if the undisclosed income is subsequently declared in a revised return. The court emphasized the importance of timely disclosure to avoid penalties.
4. Commissioner of Income Tax v. Ashok Kumar (2017): The Punjab and Haryana High Court held that the burden of proof lies on the taxpayer to establish that the undisclosed foreign income or assets were acquired through legal means. Mere denial or lack of evidence is not sufficient to escape liability.
These case laws highlight the strict approach taken by the Indian judiciary towards undisclosed foreign income and assets. Non-Resident Indians (NRIs) are particularly relevant in this context as they often have financial interests and investments abroad. Section 4 ensures that NRIs are also accountable for their offshore wealth and prevents tax evasion.
In conclusion, Section 4 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 plays a crucial role in India’s efforts to tackle undisclosed foreign income and assets. It imposes tax and penalties on individuals who fail to disclose their offshore wealth, while also providing a framework for assessment, reassessment, and prosecution. NRIs are not exempt from this provision, making it essential for them to comply with the law and declare their foreign income and assets to avoid penalties and legal consequences.