Black Money Act for NRIs: Key Precautions to Avoid Penalties

The Black Money Act, 2015, was introduced to require the disclosure of foreign income and assets of Indian residents and NRIs. Under the Common Reporting Standard (CRS) with global data sharing, tax officials can easily get your foreign financial information.

Considering this, if you are an NRI planning to move to India, you need to know about the tax obligations stated under the Black Money Act. Once your residential status changes from NRI to resident Indian, all your undisclosed foreign assets and income are taxed at 30% with penalties up to 120%. Additionally, in serious cases, you may also face imprisonment. 

Further, to help you how this blog outlines everything about the Black Money Act for NRIs and how to stay compliant with it. So read on and gather all the information. 

What is the Black Money Act for NRIs?

The Black Money Act, or the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act 2015, is a strong measure by India to address tax evasion through offshore holdings. This act targets the undeclared assets held by tax residents of India outside the country. NRIs are not part of the Black Money Act. However, once they move back to India and their NRI status changes to resident India, their foreign assets and income fall under scrutiny.

In simple words, the Black Money Act specifically targets undisclosed foreign assets and income, imposing penalties and tax on them. Considering this, for returning NRIs, it includes:

• Real estate properties overseas
• Foreign bank accounts and deposits
• Trusts established in foreign jurisdictions
• Investments in overseas companies and securities
• Any other valuable assets held abroad

Further, the broad reach of the Black Money Act makes it significant. During your NRI status, even if you legitimately earn wealth overseas, and upon becoming an Indian resident again, if you fail to disclose these assets triggers this act. 

Additionally, your residency status is calculated by the number of days you stayed in India in a financial year. Considering this, the standard threshold for resident status is spending 182 days in a financial year in India. However, exceptions also exist in this. For returning NRIs, the concept of "ordinary resident" vs "not ordinarily resident" creates confusion. 

This was all about the Black Money Act for NRIs. Moving ahead, let's know the key provisions NRIs should know to stay compliant with the act. 

Key Provisions NRIs Should Know to Stay Compliant

To stay compliant with the Black Money Act, NRIs first need to understand its specific requirements. To help them with this, the Income Tax Department of India launched an awareness campaign for the Assessment Year 2024-25. The program had highlighted the obligations of this act.

Considering this, the tax obligations of this act are determined by the residential status of an individual in India. This act exclusively applies to those individuals who qualify as Residents and Ordinary Residents (ROR) of India. Being an NRI, under the Black Money Act, you are not considered an assessee. However, once you return to India and your residential status changes from NRI to ordinary resident, your foreign income and assets immediately come under this act.

A flat 30% tax is imposed on the value of the unreported foreign assets or income. Apart from this, additional tax penalties can also go up to 120%, 3 times the tax payable (90%). Also, willful tax evasion may result in imprisonment for up to 10 years. 

Additionally, while filing your tax return in India, choose the correct ITR form. It is because ITR-1 and ITR-4 do not involve the necessary schedules for foreign asset disclosure. Further, you need to fill out:

• Schedule FA for detailing foreign assets
• Schedule TR for claiming tax relief on paid foreign taxes
• Schedule FSI for reporting income from foreign sources

Even if you do not have a taxable income or if you bought the foreign assets using your previously disclosed funds, you need to disclose your foreign assets. 

Moreover, for returning NRIs, recent amendments also provide some tax relief. From October 1, 2024, if your foreign assets, excluding immovable property is less than INR 20,00,000, then you do not need to pay a penalty of INR 10,00,000 on non-disclosure of your foreign assets. It is primarily beneficial for NRIs with minimal balances in their overseas bank accounts. 

Also, if you forget to disclose your foreign assets in filed returns, you can submit a revised return. This option helps you avoid penalties and prosecution proceedings. 

With international data-sharing agreements, Indian authorities can now easily access the information on the foreign holdings of their citizens. Considering this, the tax department of India sends notices to individuals identified through bilateral and multilateral agreements who did not disclose their foreign assets. 

Furthermore, to avoid unnecessary tax penalties and prosecutions, NRIS need to have an understanding of the Black Money Act. Additionally, they should plan their return carefully to navigate compliance requirements and avoid unintended tax violations. 

Final Thoughts

Lastly, having an understanding of the Black Money Act is vital for NRIs returning to India. It is because this act represents India's approach to tackling undisclosed foreign wealth. With severe penalties, high taxes, and criminal prosecution, it leaves very little space for tax evasion. 

Further, if you are struggling to manage your foreign assets and income and need assistance, contact Savetaxs. We have a team of financial experts who provide you with complete guidance on cross-border taxation and help you with tax planning.