Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015

 

Sections 44 and 45

Penalty Provisions – Statutory Exclusions, Monetary Thresholds and ESOP Amendment

 

1. Overview:-The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (“the Act”) is a stringent fiscal statute designed to deter and penalise deliberate concealment of foreign income and assets by residents. At the same time, the legislature has consciously incorporated specific exclusions and monetary thresholds to prevent penal consequences in cases involving low-value holdings, non-income-generating assets and contingent interests.

 

The penalty framework under the Act is primarily governed by Section 44 and Section 45, which must be read together and harmoniously, keeping in view the object and scope of the legislation.

  

2. Section 44 – Penalty for Failure to Furnish Information

Section 44 provides for a fixed penalty of ₹10,00,000 where a resident assessee fails to furnish, or furnishes inaccurate particulars of, foreign income or foreign assets in the return of income.

 

However, the provision is subject to express statutory carve-outs, which exclude certain categories of foreign assets from the ambit of penalty, even in cases of non-disclosure.

 

3. Statutory Exclusions under Section 44

3.1 Foreign Bank Accounts – Low Balance Exclusion

 

No penalty under Section 44 shall be leviable in respect of a foreign bank account where:

                •              the aggregate balance does not exceed ₹5,00,000 at any time during the previous year, and

                •              no income has accrued or arisen from such account.

 

This exclusion recognises that dormant or low-balance accounts, which do not yield income, do not constitute tax-evasive assets.

 

3.2 Foreign Shares and Financial Interests – Low Value Protection

 

Penalty under Section 44 is also not attracted in respect of foreign shares, securities or other financial interests where:

                •              the aggregate value does not exceed ₹5,00,000, and

                •              no income has arisen from such holdings during the relevant previous year.

 

This relief covers passive investments, minority shareholdings and similar low-value foreign financial interests.

 

4. ESOPs – Legislative Amendment and Rationalisation

 

4.1 Background

Foreign Employee Stock Option Plans (ESOPs) are typically contingent, illiquid and incapable of real-time valuation, particularly at the stage of grant or vesting. Under the earlier interpretation, even such notional interests were exposed to severe penalties, leading to disproportionate hardship.

 

4.2 Post-Amendment Position

The law has since been rationalised to provide that no penalty under Section 44 shall be levied for non-disclosure of foreign ESOPs where:

the ESOPs are not exercised,

no income has arisen during the relevant previous year, and

the aggregate value does not exceed ₹5,00,000.

 

Accordingly, mere grant or vesting of ESOPs, without any income event or realisable value, does not attract penalty under the Act.

 

 Stage of ESOP

 
Grant or vesting:No penalty

Unexercised options:-No penalty

Exercise with undisclosed income:Penalty may arise

Value exceeding ₹5 lakh

 

Section 45 – Penalty for Undisclosed Foreign Income and Asset

 

Section 45 provides for a penalty equal to three times the tax payable in cases involving undisclosed foreign income or assets.

 

This provision applies only where:

there exists an undisclosed foreign income or asset, and

such income or asset is chargeable to tax under the Act