Black money refers to income or funds generated through illegal activities or undisclosed transactions that evade the scrutiny of tax authorities or government regulations. It is commonly obtained through various means, including:
Underreporting Income: Individuals or businesses may intentionally report lower income to reduce their tax liabilities.
Illegal Activities: Earnings from activities such as drug trafficking, smuggling, human trafficking, arms dealing, and corruption contribute significantly to black money.
Tax Evasion: This involves deliberately avoiding taxes by hiding income, inflating expenses, creating fraudulent invoices, or utilizing offshore accounts to conceal wealth.
Unaccounted Cash Transactions: Cash transactions conducted without proper documentation can lead to the accumulation of black money.
Real Estate Transactions: Black money is often laundered through real estate by purchasing properties with unaccounted cash or via shell companies to mask true ownership.
Parallel Economy: The informal economy, where transactions occur outside taxation and regulation, contributes to black money generation. This includes unregistered businesses, street vendors, and small-scale manufacturers.
Shell Companies and Tax Havens: Black money can be funneled through shell companies and offshore accounts in tax havens to obscure the source of income and evade taxes.
Money Laundering: Black money may be legitimized through intricate financial transactions or legitimate businesses, making its origin untraceable.
Corruption: Corruption in public institutions can result in black money through bribes, kickbacks, and the embezzlement of public funds.
Legal Framework
The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, enacted on May 26, 2015, applies across India starting from the assessment year (AY) 2016-17.
Section 3: Tax Charges
Section 3(1): Tax Rate
Every taxpayer is liable to a tax rate of 30% on undisclosed foreign income and assets for the previous year. Undisclosed assets located outside India are taxed based on their value in the previous year when they come to the notice of the Assessing Officer (AO).
Section 3(2): Valuation of Undisclosed Assets
The Fair Market Value (FMV) of an asset, including financial interests in equity, is determined according to the rules established under this Act.
Section 4: Scope of Undisclosed Foreign Income and Assets
Total undisclosed foreign income and assets for any previous year include:
Income from sources outside India not reported in the income tax return filed under the Income Tax Act, 1961.
Income from sources requiring a return but not filed.
The value of any undisclosed asset located outside India.
Note: Income from sources already assessed under the Income Tax Act should not be included again under this Act.
Section 5: Computation of Total Undisclosed Foreign Income and Assets
No expenditure or loss set-off is permitted against undisclosed foreign income.
If an asset is acquired from income already assessed under the Income Tax Act or the Black Money Act, that income shall be deducted.
For immovable property, the following calculation applies:
FMV of Asset
×
White Money (Previously Disclosed Income)
÷
Total Cost of Asset
FMV of Asset×White Money (Previously Disclosed Income)÷Total Cost of Asset
Services Addressing Black Money Issues
Chartered Accountants offer various services to assist clients in dealing with black money legally and ethically:
Tax Compliance and Planning Helping individuals and businesses comply with tax planning laws and optimize tax liabilities legitimately.
Tax Representation: Representing clients before tax authorities during audits, responding to notices, and negotiating settlements.
Voluntary Disclosure Schemes: Assisting clients in disclosing previously unreported income to benefit from reduced penalties or immunity from prosecution.
Forensic Accounting: Investigating financial irregularities and providing expert analysis for legal proceedings related to black money.
Compliance Reviews and Internal Controls: Assessing internal controls within organizations to identify weaknesses and recommending improvements.
Anti-Money Laundering (AML) Compliance: Advising businesses on AML regulations and assisting in implementing necessary policies and procedures.
Business Restructuring and Asset Protection: Helping businesses restructure to protect assets from liabilities related to black money investigations.
Financial Planning and Wealth Management: Providing services to help individuals manage assets in compliance with tax laws, ensuring transparency in financial transactions.
