Black money refers to income or funds that are earned through illegal activities or undisclosed transactions that escape the scrutiny of tax authorities or government regulations. This money is typically obtained through activities such as:
1. Underreporting of income: Individuals or businesses may deliberately underreport their income to avoid paying taxes on the full amount earned.
2. Illegal activities: Proceeds from illegal activities such as drug trafficking, smuggling, human trafficking, arms dealing, and corruption often contribute to black money.
3. Tax evasion: Deliberate evasion of taxes through various means such as hiding income, inflating expenses, creating fake invoices, or using offshore accounts to conceal wealth.
4. Unaccounted cash transactions: Transactions conducted in cash without proper documentation or record-keeping can lead to the generation of black money.
5. Real estate transactions: In many countries, real estate transactions are often used to launder black money. Properties may be purchased with unaccounted cash or through shell companies to conceal the true ownership.
6. Parallel economy: Informal sectors of the economy, where transactions occur outside the purview of taxation and regulation, can contribute to the generation of black money. This includes businesses operating in the informal sector such as street vendors, small-scale manufacturers, and unregistered businesses.
7. Shell companies and tax havens: Black money can be routed through shell companies and offshore accounts in tax havens to conceal the true source of income and evade taxes.
8. Money laundering: Black money may be laundered through complex financial transactions or through legitimate businesses to make its origin untraceable.
9. Corruption: Corruption in government institutions and public services can lead to the generation of black money through bribes, kickbacks, and embezzlement of public funds.

The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, passed on 26.5.2015 & apply to whole of India w.e.f. AY 2016-17.

SECTION 3: Charging Section

1. SECTION 3(1): Rate of Tax
Every assessee would be liable to tax @ 30% in respect of his undisclosed foreign income and asset of the PY. Undisclosed asset located outside India shall be charged to tax on its value in the previous year in which such asset comes to the notice of the AO.
2. SECTION 3(2): Value of Undisclosed Asset
The Fair Market Value of an asset (including financial interest in the equity) determined in the prescribed manner as laid down in Rule 3 of Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, would be the value of an undisclosed asset.

SECTION 4: Scope of Total Undisclosed Foreign Income and Asset

Total undisclosed foreign income and asset of any previous year would be –

1. The income from a source located outside India which has not been disclosed in the return of income filed under the Income tax Act, 1961 on or before the due date under section 139(1) or in the belated return of income under section 139(4) or in the revised return of income under section 139(5).
2. The income from a source located outside India in respect of which a return is required to be filed under section 139 of the Income-tax Act, 1961, but no return, belated return or revised return has been filed under section 139(1)/(4)/(5) of that Act.
3. The value of any undisclosed asset located outside India.

NOTES:

• Income from source outside India is already included in any assessment or reassessment in Income Tax (u/s 29, 43C, 57, 59, 92C) then such income shall not be included in total undisclosed foreign income.
• Any income or asset is included in undisclosed foreign Income/Asset under this Act then such Income or Asset shall not be included in IT Act.

SECTION 5: Computation of Total Undisclosed Foreign Income and Asset
1. Expenditure or set-off of losses not be allowed against undisclosed Foreign Income.
2. If any asset is acquired out of any income which was already assessed earlier under Income Tax Act (before black money Act) or Black money Act then such income shall be reduced.
3. In continuation of point (b) in case of immovable property following amount shall be reduced.

FMV of Asset x White Money (Income already disclosed)
Total Cost of Asset

SERVICES ON ISSUES RELATED WITH BLACK MONEY

Several services offered by Chartered Accountant to assist their clients in addressing issues related to black money in a legal and ethical manner are:
1. Tax Compliance and Planning: can help individuals and businesses comply with tax laws and regulations by providing tax planning services to optimize tax liabilities legitimately. This involves ensuring accurate reporting of income, deductions, and credits while minimizing the risk of tax evasion.
2. Tax Representation: can represent clients in tax matters before tax authorities, such as responding to tax notices, handling tax audits, and negotiating settlements with tax authorities.
3. Voluntary Disclosure Schemes: In jurisdictions where voluntary disclosure schemes are available, they can assist clients in disclosing previously undisclosed income or assets to tax authorities in exchange for reduced penalties or immunity from prosecution.
4. Forensic Accounting: can help investigate financial irregularities, including the detection of black money, money laundering, and other financial crimes. They can provide expert analysis and evidence in legal proceedings.
5. Compliance Reviews and Internal Controls: can conduct compliance reviews and assess internal controls within organizations to identify weaknesses that may lead to the generation or misuse of black money. They can recommend measures to strengthen internal controls and prevent financial misconduct.
6. Anti-Money Laundering (AML) Compliance: can advise businesses on AML regulations and assist in implementing policies and procedures to prevent money laundering and the circulation of black money through legitimate financial channels.
7. Business Restructuring and Asset Protection: can help businesses restructure their operations or assets in a legal and tax-efficient manner to protect assets from potential liabilities associated with black money investigations or legal proceedings.
8. Financial Planning and Wealth Management: can provide financial planning and wealth management services to help individuals manage their assets and investments in compliance with tax laws and regulations, ensuring transparency and accountability in financial transactions.

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