Black Money Act Warning: Small Mistakes in Declaring Foreign Assets Can Lead to Big Penalties

COURTKUTCHEHRY SPECIAL ON FOREIGN ASSESTS REPORTING RULES

Black Money Act Warning: Small Mistakes in Declaring Foreign Assets Can Lead to Big Penalties

Honest taxpayers face risks from reporting lapses under strict law

How to stay compliant and avoid prosecution when declaring overseas holdings

By Our Legal Reporter

New Delhi: December 23, 2025:

India’s Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 was designed to tackle tax evasion and undisclosed wealth abroad. But recent developments show that even honest taxpayers can face severe penalties for small reporting lapses. Experts highlighted cases where individuals who missed declaring minor foreign assets were accused under the Act, which carries penalties up to ₹10 lakh and possible prosecution.

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The Income Tax Department has intensified scrutiny, aided by global data-sharing agreements with countries like the U.S. and Switzerland. This means even small overseas accounts, investments, or property holdings must be declared accurately.

What the Law Says

• Mandatory disclosure: Taxpayers must declare all foreign assets and income in their ITR, including bank accounts, shares, property, and trusts.
• Penalty provisions: Non-disclosure can attract a ₹10 lakh penalty per asset and prosecution, even if the lapse was unintentional.
• No threshold exemption: Unlike domestic income reporting, there is no minimum threshold for foreign assets. Even dormant accounts or small balances must be declared.
• Discretionary penalties: A recent Special Bench of the ITAT clarified that penalties are discretionary, not automatic, but taxpayers must prove good faith.

Recent Developments

• Targeted notices: The Income Tax Department has begun sending emails and notices to taxpayers flagged for non-disclosure, based on data exchange with foreign authorities.
• MNC employees at risk: Multinational companies have urged staff to disclose overseas holdings after reminders from the tax department.
• Deadline pressure: Taxpayers were asked to revise their AY 2025–26 returns by December 31, 2025, to avoid penalties.

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Why Honest Taxpayers Are Getting Caught

• Complex reporting rules: Many individuals are unaware that even small overseas accounts or joint holdings must be declared.
• Oversight in ITR filing: Taxpayers often miss filling the “Schedule FA” (Foreign Assets) section in their returns.
• Assumption of irrelevance: Dormant accounts, inherited property abroad, or employer-linked stock options are mistakenly considered exempt.
• Global data exchange: With automatic information sharing, even minor lapses are detected.

How to Avoid Serious Legal Trouble

1. Declare everything, no matter how small

• Report all foreign bank accounts, investments, property, and trusts—even if inactive.
• Include joint accounts and inherited assets.

2. Revise returns if errors are found

• If you missed reporting, file a revised ITR before the deadline.
• Voluntary correction shows good faith and may reduce penalty risk.

3. Maintain documentation

• Keep records of account statements, property deeds, and investment contracts.
• Documentation helps prove intent and avoid prosecution.

4. Seek professional advice

• Consult chartered accountants or tax lawyers familiar with cross-border compliance.
• Professionals can ensure accurate reporting and minimize risks.

5. Monitor global holdings

• Track overseas stock options, ESOPs, or employer-linked accounts.
• Even small balances must be disclosed.

6. Respond to notices promptly

• If you receive a tax department notice, reply with documentation.
• Non-response can escalate to prosecution.

Risks of Non-Compliance

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Expert Views

• EY India notes that penalties under the Act are discretionary, not automatic, but taxpayers must prove good faith.
• Taxscan reports that the Income Tax Department is urging taxpayers to revise returns to avoid penalties.
• Economic Times highlights that MNCs are warning employees to disclose overseas holdings before the deadline.

Conclusion

The Black Money Act is a powerful tool against tax evasion, but its strict provisions mean even honest taxpayers can face severe consequences for small lapses. With global data-sharing, oversight is easily detected.

The safest path is full disclosure, timely revision of returns, and professional guidance. By treating even minor overseas holdings with seriousness, taxpayers can avoid penalties, prosecution, and reputational damage.

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