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Understanding Black Money

Black money refers to income or funds earned through illegal activities or undisclosed transactions that evade tax authorities and government regulations. Common sources of black money include:

1. Underreporting Income: Individuals or businesses may intentionally report less income to reduce their tax liabilities.
2. Illegal Activities: Profits from illegal activities such as drug trafficking, smuggling, human trafficking, arms dealing, and corruption often contribute to black money.
3. Tax Evasion: This involves deliberately avoiding taxes through methods like concealing income, inflating expenses, creating fake invoices, or utilizing offshore accounts to hide wealth.
4. Unaccounted Cash Transactions: Cash transactions without proper documentation can lead to the accumulation of black money.
5. Real Estate Transactions: In many countries, black money is laundered through real estate, with properties purchased using unaccounted cash or through shell companies to obscure true ownership.
6. Parallel Economy: The informal economy, where transactions occur outside taxation and regulation, contributes to black money, including businesses like street vendors and unregistered firms.
7. Shell Companies and Tax Havens: Black money can be funneled through shell companies and offshore accounts in tax havens to disguise the true source of income and evade taxes.
8. Money Laundering: Black money may be laundered through complex financial transactions or through legitimate businesses, making its origins untraceable.
9. Corruption: Corruption in government and public services generates black money through bribery, kickbacks, and embezzlement.

The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, was enacted on May 26, 2015, and applies throughout India from Assessment Year 2016-17.

Section 3: Charging Section

1. Section 3(1): Rate of Tax Every assessee is liable to pay a tax of 30% on undisclosed foreign income and assets from the previous year. Undisclosed assets located outside India will be taxed based on their value in the year they come to the attention of the assessing officer (AO).
2. Section 3(2): Value of Undisclosed Assets The fair market value of an asset (including financial interests) will be determined as per Rule 3 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.

Section 4: Scope of Total Undisclosed Foreign Income and Assets

Total undisclosed foreign income and assets for any previous year include:

1. Income from sources outside India that has not been disclosed in tax returns filed under the Income Tax Act, 1961, by the due date.
2. Income from sources outside India for which no return has been filed under the Income Tax Act, 1961.
3. The value of any undisclosed asset located outside India.

Notes:

• Income from sources outside India already included in any assessment or reassessment under the Income Tax Act will not be counted as undisclosed.
• Any income or asset included under this Act will not be considered under the Income Tax Act.

Section 5: Computation of Total Undisclosed Foreign Income and Assets

1. Expenditures or losses cannot be offset against undisclosed foreign income.
2. If any asset is acquired from previously assessed income, such income should be deducted from the calculation.
3. For immovable properties, the following amount shall be deducted:FMV of Asset×White Money (Disclosed Income)Total Cost of Asset\text{FMV of Asset} \times \frac{\text{White Money (Disclosed Income)}}{\text{Total Cost of Asset}}FMV of Asset×Total Cost of AssetWhite Money (Disclosed Income)​

Services Addressing Black Money Issues

Chartered Accountants offer various services to assist clients in legally and ethically navigating issues related to black money:

1. Tax Compliance and Planning: Assisting individuals and businesses in complying with tax laws and optimizing tax liabilities while ensuring accurate income reporting.
2. Tax Representation: Representing clients before tax authorities, managing tax notices, audits, and negotiating settlements.
3. Voluntary Disclosure Schemes: Helping clients disclose previously undisclosed income or assets under schemes offering reduced penalties or immunity from prosecution.
4. Forensic Accounting: Investigating financial irregularities and providing expert analysis in legal matters related to black money and money laundering.
5. Compliance Reviews and Internal Controls: Conducting assessments to identify weaknesses in internal controls that may lead to black money generation and recommending improvements.
6. Anti-Money Laundering (AML) Compliance: Advising businesses on AML regulations and helping implement procedures to prevent money laundering.
7. Business Restructuring and Asset Protection: Assisting in restructuring operations legally to protect assets from liabilities related to black money investigations.
8. Financial Planning and Wealth Management: Providing services to help individuals manage their assets in compliance with tax laws, ensuring transparency in financial transactions.