Written By: Vijit Dubey
On March 20, 2015, the Black Money and Imposition of Tax Act was presented to the House of Representatives. It was given the go-ahead by the President on May 26, 2015, and it was eventually informed to the public in July of the same year.
Individuals as well as Institutions have been involved in tax evasion for several years, which has resulted in the generation of a substantial quantity of excess and dormant money that could not be accounted for within the parameters of the legal economy. According to the Income Tax Law, these monies are subject to taxation. However, by avoiding paying taxes, a significant quantity of money that is kept secret forms a parallel economy. This phenomenon is referred to as the formation of black money and it poses a danger to the actual economy.
What is the meaning of the term ‘Black Money '?
Money that is not disclosed or accounted for is referred to as "black money." On the other hand, there is no agreed-upon definition of "black money." Black money is often gathered and managed illegally, in violation of any rules or regulations put out by the government or the authorities. Additionally, since it is illegal, no tax deductions related to it may be claimed. Additionally, it is kept a secret from government officials who are in charge of calculating national assets like GDP and GNP.
As a consequence, a significant amount of unaccounted-for money circulates both within and outside the country, largely via cash transactions, which develops a parallel economy.
However, it has to be made extremely clear right away that the black money does not consist of fake notes. The word "legal denomination" is often hidden from the government and other authorities.
How is Black Money Generated in the Economy?
There are several ways to generate unaccounted money in the economy :
Illegal Activities- Raw cash is the most common form that money that is obtained via criminal operations such as drug trafficking, armed robbery, acts of terrorism, and corrupt government practices take. This cash is often hidden from view and out of reach of the authorities.
Tax Evasion- individuals who unintentionally fail to withhold income taxes from their paychecks due to ignorance, unwillingness, or a lack of knowledge is known as tax evasion.
Tax Avoidance- tax avoidance is when people knowingly take advantage of the loopholes in our taxation system to avoid paying taxes on earned income.
Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015
According to the Honorable Prime Minister of India, Narendra Modi, there is a fabulous sum totalling about Rs.6500 crore that is hidden in safe havens both inside and outside of India and is untouchable by Indian law. The sole intention behind the introduction of this Act, which has been the subject of much discussion, is to deal with this sum. The Indian government has handled the matter of these hidden revenues with the utmost care and attention to detail. Without rushing into any half-baked laws, they took years to develop very solid and robust legislation for the application of the tax on any undeclared foreign income and asset outside of India. This law imposes a tax on any foreign income or asset that is held outside of India.
Provisions of this Act
Penalize the hiding of foreign earnings.
Establish criminal penalties for trying to escape paying foreign income taxes.
There are no penalties for anybody with offshore accounts with balances under 5 lakhs.
Persons will be given a single chance to comply to reveal their foreign holdings.
As no exemption from punishment is provided, the chance won't be an amnesty program.
Detailed provisions of this act are as follows:
A flat tax rate of thirty per cent will be applied to any and all earnings and holdings from overseas that are based on the valuation from the previous year.
Under no circumstances will there be an exemption applied to the whole amount of tax that is due. Beginning on April 1, 2016, this act will have legal repercussions for anyone who violates it.
Which income is to be taxed?
Income and possessions acquired outside of India, i.e., outside of India, which were not disclosed in the filing of an income tax return for the previous year.
Tax evasion is the deliberate or unintentional failure to account for income and assets acquired outside of India, i.e. outside of India, in an individual's income tax return filing.
Power to inspect all the documents and pieces of evidence;
The proceeding must be Judicial by nature.
In accordance with the Act, a specified number of penalties must be paid in addition to the rate of tax that was owed before; the amount of penalties that must be paid is determined by the kind of tax evasion offence that was committed.
The penalty that must be paid for this kind of offence is equal to three times the amount of tax that must be paid. This applies to both undisclosed foreign income and assets.
For failing to provide the required tax returns
If the foreign income or asset has a value that is more than Rs. 5 lakhs, then a penalty of Rs. 10 lakhs would be levied.
Regarding Any Misrepresentations or Non-Disclosures Regarding Foreign Assets
If the concealed foreign income or asset has a value that is more than 5 lakhs of rupees, then a penalty of 10 lakhs of rupees will be imposed.
A penalty that is equivalent to the amount of tax arrears will be levied against a person who is a second-time defaulter.
If the defaulter does not respond to questions that are asked by the tax authorities, refuses to sign a statement, or does not attend and submit needed papers, then a penalty that ranges from Rs. 50,000 to Rs.2 lakhs will be drawn.
Prosecution for such offences
This Act establishes the opportunity for a person to be imprisoned via legal channels if they are discovered continuing the creation and distribution of Black Money.
knowingly seeking to avoid paying taxes
Depending on how serious the offence was, this individual may spend three to ten years in jail and pay a steep fine of 300 per cent.
A person who tries to avoid paying taxes on purpose faces a jail sentence of three months to three years, depending on the seriousness of the offence, as well as a steep fine of 300 per cent.
According to the seriousness of the offence, this individual faces a jail sentence of 6 months to 7 years and a substantial fine of 300 per cent for failing to provide an income tax return.
Punishment for encouraging or assisting someone to dodge taxes: These individuals will get the same punishment as the offender.
Depending on how serious the offence was, this individual may spend anywhere between 6 months and 7 years in jail and pay a hefty fine of 300 per cent.
Organizational Offense Responsibility
If any organization, institution, or corporation is found guilty of tax evasion, each and every individual accountable to the firm will be considered guilty of the offence, and the fines will be determined according to the offence's kind and the precedent instances described above.
However, if any individual accountable to the firm can demonstrate that this offence was committed without their knowledge or approval, they will be exempt from the penalty.
There will be a lot of disagreements and arguments about whether or not the Black Money and Imposition of Tax Act of 2015 was successful or was a waste of time, but when the Act, the MCAA, and the FATCA agreement are taken into account together, they create a formidable system that maintains the target of reducing the amount of black money in circulation. This is by far the most methodical and reliable approach that the Indian government has put into place to combat the issue of black money to this day