Imagine this: you’ve always filed your taxes on time, never missed a payment, and suddenly a brown envelope lands at your door — a ₹10 lakh penalty notice from the Income Tax Department. That’s what happened to Rakesh Sharma, a Delhi professional who thought he’d done everything right. His mistake? He forgot to list a small foreign bank account — one that barely held ₹2 lakh — in his Income Tax Return.
If that sounds harsh, you’re not alone in thinking so. Many ordinary taxpayers are being caught in the same web, not for hiding black money but for missing a simple disclosure.
The Law Behind the Shock — The Black Money Act, 2015
Tax expert and former Principal Commissioner O.P. Yadav explains that this isn’t a clerical overreaction but a direct outcome of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015. The law was designed to uncover hidden wealth abroad and punish deliberate tax evasion. But in practice, it has also trapped people whose overseas accounts were legitimate — salaries, education funds, or leftover balances from when they worked or studied abroad.
Because of India’s Automatic Exchange of Information (AEOI) agreements with dozens of countries, the tax department now gets detailed data on every foreign account linked to Indian residents. So, even an old dormant account can trigger a notice if it’s not declared in Schedule FA of your ITR.
Is the ₹10 Lakh Penalty Mandatory?
Here’s where things get confusing. Sections 42 and 43 of the Act mention that the Assessing Officer may direct a person to pay a ₹10 lakh penalty for not disclosing a foreign asset. The words “may” and “shall” sit awkwardly together — and that’s divided courts.
Some benches of the Income Tax Appellate Tribunal treat it as mandatory; others believe the officer has discretion. According to Yadav, logic — and fairness — suggest discretion should prevail. After all, the law requires the officer to issue a show-cause notice, offer a hearing, and get higher-level approval before imposing a penalty. That clearly points to case-by-case judgment, not automatic punishment.
Why Reform Is Needed
The bigger problem? The Black Money Act offers no safety clause like Section 273B of the Income Tax Act, which protects taxpayers who can show a “reasonable cause.” That means a student who forgot to close a foreign account faces the same fine as someone hiding crores abroad.
The Central Board of Direct Taxes (CBDT) has reportedly formed a committee to review the Act. This is the right moment to make the rules clearer, fairer, and more compassionate — so honest taxpayers aren’t punished for technical slip-ups.
What You Can Do Right Now
- Check your foreign accounts — even small or inactive ones.
- Declare all assets in Schedule FA when filing your ITR.
- Seek advice from a qualified tax consultant if you’ve ever worked or studied abroad.
Think of it this way: the penalty isn’t just about money; it’s about awareness. A few minutes of double-checking can save you years of anxiety.
Frequently Asked Questions
1. What triggers a ₹10 lakh penalty notice?
Failing to report a foreign bank account or asset in Schedule FA of your Income Tax Return can trigger a ₹10 lakh penalty under the Black Money Act.
2. Is the penalty always applied?
Not necessarily. The Assessing Officer has discretion after issuing a show-cause notice and hearing your explanation.
3. How can taxpayers avoid such notices?
Always disclose every foreign asset, even if it holds a small balance, and update your ITR and KYC details each year.
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