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Basis of Charge – Section 3 – Black money act

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June 8, 2021

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5 mins read

Basis of Charge – Section 3 – Black money act

The assesse shall be liable to pay income-tax at the rate of 30% in respect of any undisclosed foreign income and /or undisclosed foreign asset of the previous year.

Unlike the Income-Tax Act, the term ‘assessee’ for the purpose of the Black Money Act covers only ‘resident and ordinarily resident’ . A person who is resident but not ordinarily resident is not considered as an assessee for the purpose of BMA.

The “undisclosed foreign income” includes rental income from property situated outside India, interest income earned outside India, etc.

The term ‘Undisclosed foreign asset’ includes, undisclosed bank account situated outside India, undisclosed property situated outside India, undisclosed interest in a foreign Firm or LLP etc. [For details, refer definition of undisclosed foreign asset at Para 6 of this chapter]

NOTES : –

  • The Black Money Act does not cover undisclosed Indian assets and undisclosed Indian sourced income like, undisclosed income from property situated in India, undisclosed income from business in India, undisclosed income in the form of other valuables, etc. The provisions of the IT Act   would be applicable on such income and assets.
  • In addition to 30% tax on undisclosed income and undisclosed foreign assets, assessee would also be liable to pay penalty of 300% of amount of tax evaded on such income or assets. [Discussed in Section 41 of the Black Money Act]

Basis of Charge – Section 3 – Black money act  – Example 1

Mr. John, stayed in India for a period of 200 days during FY 2017-18. He has always stayed in India throughout his life and had never travelled abroad.   However, he has filed income-tax returns with Nil  taxable income until FY 2017-18.  Based on certain information required during the search of XYZ Limited., his case is picked for scrutiny assessment for FY 2015-16. AO has discovered certain investment in house property situated in India, which   Mr. John  who was not able to explain in terms of the source of money through which such properties were acquired.  You are required to comment whether such unexplained investment would be covered under the Black Money Act ?

SOLUTION

Mr. John, is a resident and ordinarily resident in India during the relevant financial year. The provisions of the Black Money Act, does not cover undisclosed Indian assets  or Indian undisclosed income. Thus, such unexplained  house property would be taxable @ 60% as per Section 115BBE of the Income-Tax Act . It would not be covered under the provisions of the BMA.

Basis of Charge – Section 3 – Black money act  – Example 2

Mr. Raj, is a service provider in India . During the Previous Year 2016-17, he worked on assignment of foreign client , while he stayed in India . Mr. Raj did not disclose such income in his ITR . Whether provisions of the Black Money Act would be applicable on such income earned by Mr. Raj ?

SOLUTION

The provisions of Black Money Act do not apply to India sourced income . Hence, professional fee earned by Mr. Raj is not covered under the Black Money Act . However, provisions of income-tax Act would be applicable on such income.

For any queries, please write them in the Comment Section or Talk to our tax expert

Arinjay Jain

Bio of author

Arinjay is a Chartered Accountant with more than 20 years of post-qualification experience. He worked as Director, in the M&A Tax Division at KPMG in India. Presently, he is advising several MNCs in UAE on Economic Substance Regulations and impact of the UAE Corporate Tax Law on their business and clients across globe on International Tax issues . He is a well recognised Trainer of International Tax and UAE Corporate Tax. The areas of service include the following : - Advise and Compliance relating to International Tax Issues; Advise relating to UAE Corporate Tax Issues; Advise and Compliance relating to UAE Economic Substance Regulations; Advise and Compliance relating to Indian Income Tax Issues; Other connected matters from a Regulatory perspective.

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