Non-Disclosure of Foreign Assets in Income Tax Returns: A Serious Offense with Legal Consequences

 

Who is Required to Report Foreign Assets?

Only individuals who are classified as “Resident and Ordinarily Resident (ROR)” under Indian tax law are required to disclose foreign assets. This includes:

• Foreign bank accounts
• Foreign investments (stocks, bonds, mutual funds, real estate etc.)
• Foreign trusts or beneficial interests
• Any other financial interest or ownership overseas

Legal Consequences of Non-Disclosure

Under Indian Tax Law (BMA & Income Tax Act):

• Penalty under the Black Money Act, 2015
  Applicability: If you are an ROR and fail to disclose foreign income/assets.
  Penalty: ₹10 lakh per undisclosed foreign asset, irrespective of its value. As per finance act 2024 (2), Provided that section 43 of Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 shall not apply in respect of an asset or assets (other than immovable property), where the aggregate value of such asset or assets does not exceed twenty lakh rupees.
• Criminal Prosecution
  Under BMA: Imprisonment from 3 to 10 years for willful non-disclosure.
  Under the Income Tax Act: Imprisonment from 6 months to 7 years, plus fines, for willfully attempting to evade tax.
• Reopening of Past Assessments:
  The Income Tax Department can reopen assessments up to 16 years back in cases of undisclosed foreign assets or income.
• Tax on Undisclosed Income:
  Tax is levied at the maximum marginal rate (currently 30% + applicable cess and surcharge) on the value of the undisclosed asset/income.
• Interest on Tax Dues:
  Interest under Sections 234A, 234B and 234C may be charged for late or insufficient tax payment.
  Loss of Tax Benefits Potential denial of:
  • DTAA (Double Taxation Avoidance Agreement) benefits
  • Deductions/exemptions if the return is considered defective or invalid