ESPPs to employees and its implications under Income Tax Act and Black Money Act

• Introduction:

In order to counter the tax avoidance by residents in India by way of non-disclosing the income earned outside India, Central Government has introduced Black Money Act with effective from 01.07.2015. Though the IT Act levies tax on global income earned by residents, there are inherent limitations for applicability of IT Act. The objective of the Black Money Act is to levy tax on undisclosed foreign income/or assets located outside India.

Every resident and ordinarily resident, while filing the return of income, shall disclose all foreign assets (including investment in shares and securities) and income on such foreign assets in Schedule FA. Non-submission of such Schedule FA in income tax return attracts consequences under the Black Money Act.

It is general practice that a multi-national company allots stock to its employees or employees of its Indian subsidiary. There are other equity compensation plans which would have different disclosure requirements. Few of them are:

• Restricted Stock Units or Restricted Stock Awards are an alternate form of compensation to ESOPs. They are a restricted form of equity incentive that an employer grants to its employees. Since the employee in question gets them in the form of an incentive, they don’t have to pay any money for it. It is provided to them on satisfaction of vesting conditions, usually over a vesting schedule.
• An employee stock purchase plan (ESPP) allows an employee to purchase stock directly, generally at a discounted price to the existing market value or fair value. In such plans, there are no grant or vesting stages as employees are offered share purchase on meeting the eligibility conditions. These shares are purchased by pooling funds done generally through an automated deduction from the salary of the employee on a regular basis. Such stocks would need to be disclosed under Table B as covered in the “Exercise” stage mentioned in table above. Further, any discount offered on purchase would be termed as perquisite income which would need to be reported under Table G, if earned from a source outside India.

Non-reporting of such RSUs/ESPPs in the return of income may result in huge penalty under the Black Money Act.

In this article, consequences, and reporting requirements under the provisions of the IT Act and the Black Money Act have been discussed in detail. 

The article has been divided into three parts, following the life cycle of RSUs/ESPPs: 

• Consequences & reporting requirements at the time of issue of RSUs/ESPPs.
• Consequences & reporting requirements in respect of income earned from such stocks.
• Consequences & reporting requirements at the time of disposal/alienation of stocks.

Before understanding the consequences and reporting requirement, it is required to understand the method of exchange of information between two countries. In order to combat the possible tax evasion, G20 and OECD countries have agreed to develop 

CRS on Automatic Exchange of Information. 

Under the above initiative, Government of India has joined multilateral competent authority agreement under which Government of India is receiving information from more than 90 countries across the world. We believe that based on the above arrangements, Government of India would be in a position to obtain information of the assets located outside India which are held by indians.

• Consequences & reporting requirements at the time of issue of RSUs:
• Head of income: Section 17 (earlier section 17(2) of IT Act,1961) of the IT Act states that any stock issued by the employer to its employee at free of cost or at concessional rate is considered as perquisite in the hands of the employee and such perquisite is chargeable to tax as income from salary.
• Year of taxability: The question arises is in which year such perquisite is taxable i.e., whether it is year of granting, over period of vesting period or year of vesting or year of exercise. In the case of RSU, as stocks are automatically vested, such stocks are taxable in the year of vesting.
• Value of perquisite: Once the year of taxability is determined, it is required to determine the value of perquisite. As stated above, in the case of RSU, as such stocks are issued free of cost, FMV of such RSU as on the date of vesting is considered as value of perquisite. Whereas, for shares purchased on ESPP, the discount on the value of share given would be considered as value of perquisite. Once the value of perquisite is determined, it is required to determine how to discharge tax liability on such perquisite. In this regard, section 392 (earlier section 192 of IT Act,1961) of the IT Act states that the employer is responsible for deduction of tax at source. Which means that while issuing the stocks to its employees, employer would deduct tax from such stocks and remit the same to government exchequer. Though the stocks of the parent company have been issued, the company in India being the employer is under the obligation to deduct tax at source. As the stocks are issued in kind, for the purpose of such TDS, employer may opt for any of the following method: 

• May deduct tax from the salary paid in cash/bank. 
• May withhold/transfer some of the stock issued to employees to meet the tax deduction requirement.
• Collect the amount from the employee.

In respect of RSUs/ESPPs, Option 2 of the above i.e. transferring required number of units immediately after the vesting is widely used by the multinational companies to meet the TDS obligations.

Once the stocks have been issued to employees and tax has been deducted on such stocks, the employee is required to file an ITR and disclose such income as income from salary.

1. Consequences under the Black Money Act: These provisions are applicable to residents other than non-ordinarily resident in India. To mean that these reporting requirements are not applicable to non-residents and residents but not ordinarily residents in India. However, provisions of Black Money Act are applicable to non-residents, and residents but not ordinarily residents if foreign income was earned or asset was acquired while he was a resident in India. Though the provisions of Black Money Act are applicable to non-residents and residents but not ordinarily residents, disclosure in Schedule FA is applicable only to residents and ordinarily residents.

As discussed earlier, a company in India may issue stocks of a parent company located outside India. In such case, in addition to reporting the income from such stocks in India, as such stock acquired is considered as foreign asset in the hands of the employee, it is required to disclose details of such assets in the Schedule FA in the ITR. Such a disclosure is required to be made every year till the disposal of the asset located outside India. 

Failure to report such assets located outside India in the ITR may attract a penalty, under section 42/43 of the Black Money Act, of an amount of Rs.10,00,000/- without considering the value of asset located outside India. However, no penalty applies if the total value of foreign assets (except immovable property) is less than or equal to Rs. 20,00,000/.

Further, in addition to the above penalty, under section 49/50 of the Black Money Act, prosecution may be initiated on such person with a punishment of rigorous imprisonment for a term which shall not be less than 6 months, but which may be extended to 7 years.

• Consequences & reporting requirements in respect of income earned from such stocks: 

1. Once the stocks have been issued to an 

employee, it yields a return in the form of a dividend. When the employee receives any dividend from a company which is located outside India, such dividend shall be duly included in the total income in India for the purpose of payment of tax. This is because, under the provisions of the IT Act, global income received by a resident in India is taxable in India. However, such income in the form of dividend may also be liable to tax in the foreign country under the domestic laws of such country. When such an income is liable to tax in India, it is required to determine whether there is a DTAA between India and respective country.

If the answer to the above question is affirmative, employee is eligible to claim tax paid in foreign country as credit while computing tax liability in India under section 159 (earlier section 90/90A of IT Act,1961) of the IT Act. If the answer to the above question is negative, an employee is eligible to claim tax paid in a foreign country under section 160 of the IT Act. 

For example, if an employee receives any dividend from a company located in USA, such income is liable to tax in USA at the rate of 25 percent. Once the tax has been paid/deducted from such dividend income in USA, employee is required to include such dividend in India and claim credit of tax paid in USA. After claiming the credit of tax paid in USA, balance tax payable, if any shall be paid in India.

In order to claim such credit of foreign taxes, employee is required to submit Form 67 within the due date specified under section 263(1) (Earlier section 139(1) of IT Act,1961) . Further, as such income is not chargeable to tax under the head salaries (as dividend is chargeable to tax under ‘income from other source’), company in India (employer) is not under any obligation to deduct tax in India unless such income is declared by the employee for deduction of tax at source under section 392(earlier section 192 of IT Act,1961). Hence, it is the responsibility of the employee to make sure that the dividend income is included in the total income for the purposes of tax computation in India. Further, in certain scenarios, instead of paying the dividend into the bank account of the employee in India, such dividend received by the employee may be re-invested into shares of the listed parent company. In such a case, dividend income shall be reported as ‘income’, and purchase of shares from such dividend reinvestment shall be reported as ‘asset’ under Schedule FA. 

1. Consequences under the Black Money Act: If any dividend income is not included in the total income while filing the ITR, such an income may be considered as an ‘undisclosed foreign income’ under the Black Money Act. Once the income is considered as an ‘undisclosed foreign income’, such income is assessed to tax under the Black Money Act at the rate of 30 percent.

Further, as such income is assessed to tax under the Black Money Act, it may be difficult to obtain credit for taxes paid in foreign countries. Which means that such income may be taxable at the rate of 30 percent without any credit. Continuing with the above example, the employee may end up paying 55percent in taxes (25 percent withholding done in USA and 30 percent under Black Money Act in India). In addition to the tax payable at the rate of 30 percent on ‘undisclosed foreign income’, a penalty of 300 percent of tax may be levied under the Black Money Act. Further, any failure to disclose such dividend income in Schedule FA (even such income is included in total income in India) may attract a penalty of Rs.10,00,000 under section 42/43 of the Black Money Act and imprisonment as stated above.

• Consequences & reporting requirements at the time of disposal/alienation of stocks: Finally, an employee may dispose of the stock and receive amount into his bank account. When the shares of a company have been transferred by the employee, any gain arising from such transfer is considered as capital gains. 

• In this regard, it is important to note that transfer of shares by the company to meet the TDS obligations under section 392 (section 192 of IT Act,1961) is also considered as transfer of shares by the employee and capital gains need to be computed on such transfer.
• In addition to the above, the capital gains may also arise when employee himself transfers the shares. In such a scenario also, capital gains may need to be computed.
• Hence, in the context of RSUs/ESPPs capital gain may need to be computed in two scenarios below.
  

1. Head of income: Such gain/loss arising from the transfer of stock received is chargeable to tax in the hands of the employee as income from capital gains. Further, in order to compute tax liability, it is required to classify such gain into short-term capital gains and/or long-term capital gains.

• Year of taxability: Such capital gain arising from the transfer of shares is chargeable to tax in the year in which such transfer took place.
• Sale consideration: The amount received from the transfer of shares is considered as sale consideration.
• Cost of acquisition (COA): Value taken for the purpose of perquisite (i.e., FMV as on the date of vesting) and in case of purchase of shares under ESPP (Purchase price and value of perquisite that is discount given would be considered as cost of acquisition. Accordingly, the difference between sale consideration and value of perquisite is considered as capital gains chargeable to tax under the head capital gains. 
• However, it is required to be noted here that for the purpose of computation of COA, as the shares were acquired on multiple occasions (i.e. by way of multiple vesting and multiple acquisitions under ESPP), FIFO method needs to be applied.
• For detailed understanding please refer to case study 2.
  
• Taxability of capital gains:

Category of shares	Short term /Long term	Rate of tax	Period of holding
In case of shares listed in any stock exchange in India	Short term capital gain	20percent	Period of holding is not more than 12 months; it is considered as short term capital gain/loss.
	Long term capital gain	10 percent if transferred before 23.07.2024. 12.5 percent if transferred after 23.07.2024.
In case of shares not listed in any stock exchange in India	Short term capital gain	At applicable slab rates.	Period of holding is not more than 24 months; it is considered as short term capital gain/loss.
	Long term capital gain	20 percent with the benefit of indexation if transferred before 23.07.2024. 12.5 percent if transferred after 23.07.2024.

• Consequences under the Black Money Act: The consequences and reporting requirements under the Black Money Act are the same as discussed in para III(B).

• Case study 1: 

In certain cases, it is observed that the company, in order to meet the tax deduction requirements under section 392(earlier section 192 of IT Act,1961), is transferring part of stock issued to its employees. Let us proceed to understand the tax consequences of such a case. For example, Mr. X is an IT employee working with a global corporate. Mr. X has been granted stocks of a parent company located outside India under the employee stock reward scheme.

• Total stocks granted 1,000 units.
• Stocks vested during the current year 200 units.
• FMV of such stock as on the date of vesting is USD 1,000/-.
• In the above situation, the company (Indian subsidiary) being an employer needs to deduct tax at applicable slab rate. For the sake of understanding, the tax rate is considered as 30 percent (flat rate).
• To meet the tax liability, the company automatically transfers 30 percent of the stock and discharges its TDS obligation.
• The company instructs us to deposit 200 units into the stock account of the employee and transfers 60 units (30 percent) on the same day or the next day.
• Accordingly, tax of 30 percent would be deducted by the company in India and duly issues Form 16 to its employee. 

In the above, in the first instance, USD 2,00,000/- i.e., USD 1,000*200 units is considered as perquisite taxable under the head salary. Hence, such income is to be included in the total income while filing the ITR in India. In addition to the above, as Mr. X holds assets in a foreign country, such assets shall be duly reported in the Schedule FA. Further, in this case, as the company is transferring 30percent of shares, such transaction has to be reported as ‘capital gains. This reporting has to be made whether or not any gain received by the employee. 

For example, if share is transferred at USD 1,100 per share, the difference of USD 100 needs to be reported as gain under the head capital gains. If the same is transferred for USD 1,000, though there is no gain, such transaction shall be reported under the capital gains as nil. In these circumstances,

AY	Last date of filing	Additional tax payable
2021-22	31.03.2026	70 percent
2022-23	31.03.2027	60 percent
2023-24	31.03.2028	50 percent
2024-25	31.03.2029	25 percent

as the company is deducting the taxes, employees are under the assumption that no additional reporting or disclosure is required. However, the above reporting and disclosure shall be made.

Further, the foreign company is issuing a dividend in respect of shares held on the recorded date. Such dividend is also required to be reported in India for the purpose of tax.

However, the employee can claim credit of taxes paid in the foreign country by submitting the Form 67.

Non-reporting and/or disclosing of assets and foreign income (capital gains and dividend) attract severe consequences under the IT Act and Black Money Act as discussed in the above paras. 

If any person failed to report or disclose the above-mentioned assets or income, it is advisable to file revised return or updated return [for the previous year’s subject to time limits and subject to satisfaction of conditions provided under section 263(6) (earlier section 139(8A) of IT Act,1961)] in order to comply with the reporting and disclosure requirements under the IT Act and Black Money Act. Updated return for the respective year, penalty that arises and last date to file the updated return has been provided below:

• Case study 2:

In certain cases, where an employee receives both RSUs and ESPPs, and subsequently sells the shares, taxability of such sale proceeds must be taken care. Let us proceed to understand the tax consequences of such a case. 

Mr. Y is an IT professional employed by an Indian subsidiary of a global corporate. As part of his employee compensation, Mr. Y has been granted equity-based incentives under the Employee Stock Reward Plan (RSUs – Restricted Stock Units) and the Employee Stock Purchase Plan (ESPP) by the parent company, which is located outside India.

• Stock grant and purchase details:

• RSU vesting: Mr. Y was granted a total of 1,000 stock units under RSU. As of 31st May 2024, 200 of these units vested. At the time of vesting, the FMV of each unit was USD 1,000. Therefore, the total FMV of the vested units amounted to 200 units multiplied by USD 1,000, which equals USD 200,000.

• ESPP purchase: On 30th September 2024, Mr. Y purchased 300 stock units under the ESPP. The FMV of each unit was USD 1,200. His employer provided a 15 percent discount on the purchase price, which meant he paid USD 1,020 per unit. The benefit Mr. Y received as a perquisite, calculated as the difference between the FMV and the discounted price, amounted to (USD 1,200 – USD 1,020) × 300 units, resulting in a total perquisite value of USD 54,000.

• And later, on November 2024, Mr. Y sold 150 shares. This requires independent reporting. This capital gain is reported under “Capital Gains” in ITR.

In accordance with Income Tax provisions, the Indian subsidiary, as the employer, is obligated to deduct tax on perquisites arising from stock-based benefits. The tax rate considered for illustration is a flat 30 percent.

• On RSU vesting: As part of the stock compensation, the perquisite income arising from the vesting of 200 units was valued at USD 200,000. The company deducted TDS at 30 percent, which amounted to USD 60,000. To simplify the process, the company credited all 200 vested units to Mr. Y’s stock account and immediately transferred 60 of those units—equivalent to the 30 percent TDS liability—either on the same day or the next. These 60 units were used to discharge the TDS obligation, while the remaining 140 units stays in Mr. Y’s stock account as his own.

• On ESPP purchase: In addition to the RSUs, Mr. Y received a perquisite income of USD 54,000 from the discount benefit under the ESPP. The company deducted TDS by 30 percent, which came to USD 16,200. Since the FMV of each share in September 2024 was USD 1,200, the company transferred 14 shares (because 16,200/1200 = 13.5 shares) to cover the TDS liability. 300 shares he purchased were credited to his stock account, giving him full ownership of the remaining shares after accounting for the TDS discharge.
• Reporting in Income Tax Return (ITR): perquisite reporting: The total perquisite income arising from RSUs (USD 200,000) and ESPP discount (USD 54,000) must be disclosed under the head “Salaries” in Mr. Y’s ITR for the AY 2025–26.

1. Schedule FA – foreign assets disclosure: As Mr. Y holds shares in a foreign country, irrespective of the tax deduction by the employer, the details of such foreign assets (number of units, value in USD, acquisition date, etc.) must be disclosed in Schedule FA of the ITR.
2. Capital Gains Reporting: 

• Capital Gain reporting should take place on both transfer of shares to withheld TDS and on actual transfer of shares.
• So, during RSU vesting, the transfer which takes place leads to capital gains for which the sale consideration is considered as sale proceeds on such transfer and cost of acquisition is FMV of such vested shares as on the date of vesting.
• Further, during ESPP Purchase, 14 shares are transferred to withhold the TDS. Here comes the FIFO (First-In-First-Out) method, i.e. the RSU shares are treated as transferred first. So if there are shares left out under RSU vesting, those shares would be transferred first.
• And later, on the shares sold, Mr. Y is required to disclose the same and report the capital gain under “Capital Gains” in ITR.

For detailed understanding, refer to the table below.

 

Event	Number of shares	Sale price per share (USD)	Cost of acquisition per share (USD)	Total capital gain (USD)
Transfer to meet TDS obligation (RSU) – May 2024	60 (30 percent of 200 vested RSUs)	1,000	1,000	0 – Report as nil capital gain transaction.
Transfer to meet TDS obligation (ESPP) – Sep 2024	14	FMV as on the date of acquisition (USD 1,200)	1,000(Acquisition cost of RSUs)	14*200 = 2,800 – Report as capital gain transaction under “Capital Gains”
Sale of shares – Nov 2024	150 = 126+24	1,100	For 126 shares the cost of acquisition would be USD 1,000. Whereas for the remaining 24 shares the cost of acquisition would be USD 1,200.	126(1100-1000) +24(1100-1200) = 10,200 – Report under “Capital Gains”

 

Further, the foreign company is issuing a dividend in respect of shares held on the recorded date. Such dividend is also required to be reported in India for the purpose of tax. 

However, the employee can claim credit of taxes paid in the foreign country by submitting the Form 67. Non-reporting and/or disclosing of assets and foreign income (capital gains and dividend) attract severe consequences under the IT Act and Black Money Act as discussed in the above paras. 

• FAQs: 

• Who is under the obligation to comply with the reporting and disclosure requirements? 

The above reporting and disclosure requirements are to be made by every resident and ordinarily resident.

• Whether a deemed resident under section 6(7) (earlier section 6(1A) of IT Act,1961) is required to comply with the above requirements? 

No, as deemed residents are considered as residents but not ordinarily residents, the above reporting requirements may not be applicable.

• When a person acquires stock while he was a non-resident. Whether such a person is required to make any disclosures?

Though the stocks have been acquired by an individual while he was a non-resident, such person is required to disclose those assets under Schedule FA immediately once such person becomes resident and ordinarily resident in India.

• Whether a resident is required to report those stocks every year? Or only in the year of acquisition? 

Under the Schedule FA, residents are under an obligation to report any foreign assets held by such person every year. Hence, such person is required to report stocks held by such person every year till the disposal of such asset.

• Whether employee is required to report stock received under the previous employment?

The above reporting requirements are applicable to every resident and hence such employee, whether he continues to be in employment or not, is under the obligation to comply with the above reporting requirements. 

• A person retired from the employment and does not have taxable income in India but holding shares acquired under RSUs during the employment. Whether such a person is required to file ITR and disclosure those stocks in Schedule FA?

Under the provisions of IT Act, every person whose income exceeds the maximum amount is under the obligation to file ITR in India. However, proviso to section 263(1) (earlier section 139(1) of IT Act,1961) states that in addition to the above-mentioned person, a person who is holding any asset or beneficial interest outside India is liable to file ITR in India. Hence, such a person is required to file ITR in India and disclose assets in Schedule FA. 

• What are the major consequences under the Black Money Act if any resident fails to comply with the above requirements?

When any foreign income is not included in the total income, such income is considered as undisclosed foreign income and taxable at the rate of 30percent (without any deductions) and penalty may be levied at the rate of 300percent of the tax payable. Further, interest under section 423, section 424 and section 425 (earlier section 234A, 234B and 234C of IT Act,1961 respectively) of the IT Act would be levied at the time of recovery of tax payable under the Black Money Act. 

• If tax is deducted on RSUs and included the same in the ITR, whether the penalty is levied for non-disclosure of assets in the Schedule FA?

Provisions of Section 42/43 of the Black Money Act states that any person failed to disclose or file return of income despite holding foreign assets or failure to disclose such foreign asset is liable to penalty of Rs.10,00,000/-. However, considering the spirit behind the Black Money Act, one can argue that disclosure is paramount, whether in the specified schedule in the ITR or in the total income. Since disclosure is made to the tax authorities, it can be pleaded that the same should be seen enough compliance under the Black Money Act. 

Further, in certain cases, taxpayers whose total income exceeds a prescribed threshold, they are mandated to file the statement of assets and liabilities. In such statements, the taxpayers (employees) would have invariably disclosed the RSUs/underlying shares as investments. This should also be considered as adequate disclosure for the purposes of the Black Money Act. Further, judicial fora have held that penalty proceedings are not automatic but can be initiated only when there is an intentional failure on the part of the assessee. Considering the above, one may take a stand that since RSUs are disclosed by way of withholding of tax by the employer, it amounts to adequate disclosure and compliance under the provisions of Black Money Act.

• What is the time limit to issue a notice under the Black Money Act to assess foreign undisclosed income? 

Unlike the IT Act where the time limit is 4 years 3 months to reopen the assessment (6 years 3 months in certain cases), there is no time limit to issue a notice under the Black Money Act.

• Can a person file a revised or updated return to comply with the above requirements? 

A person may file a revised return at any time on or before 31st December of the relevant assessment year. In such a revised return, the employee may comply with the above reporting requirements. Further, a person may file updated return within a period of 4 years from the end of relevant assessment years (additional tax is required to be paid under updated return).

However, an updated return cannot be filed in certain circumstances which inter alia includes where any proceedings under the IT Act are pending or completed for the assessment year, or department has received any information from the foreign country under the agreement referred to in section 159(earlier section 90/90A of IT Act,1961) and same has been communicated to the assessee.

Though the notice issued to employees does not specifically mention that the notice is a consequence to the information in possession received by them under the arrangements referred in Section 159(earlier section 90/90A of IT Act,1961), the tax authorities may harp on the same and there is a possibility for rejecting the updated return.

• When the income has been assessed to tax under the Black Money Act, whether same is taxable under the provisions of the IT Act? And penalties levied under both Acts?

Section 4(3) of the Black Money Act states that once the income or asset is assessed to tax under the provisions of the Black Money Act, same shall not be subject to tax under the provisions of the IT Act. This is because, as the Black Money Act has been brought in to deal with special assets/income, it should prevail over general laws. Further, the Delhi Tribunal in the case of Ashok Kumar Singh has held that once the provisions of Black Money Act have been invoked, revenue shall not invoke provisions of IT Ac to deal with the same set of facts. Hence, once the provisions of Black Money Act have been invoked, for the same set of facts, provisions of IT Act may not be invoked.

• Are penalties under the Black Money Act qua undisclosed asset or undisclosed income or qua each year?

Under the Black Money Act, different penalty provisions are applicable for different non compliances. For example, section 41 of the Black Money Act deals with the penalty when undisclosed asset or income is assed to tax. Section 42/43 deals with the failure to file return of income despite holding foreign assets/income and/or failure to make disclosure of foreign assets and income in the ITR. The above question arises with respect to failure to disclose such foreign assets in Schedule FA in the ITR as schedule FA is required to report every year. In this regard, though the Black Money Act is silent, as a legal prudent, penalty cannot be levied for each year for failure to make disclosure in Schedule FA. 

• When disclosure of asset is made (through TDS route of Statement route), is the income arising from such an asset to be separately disclosed? Is it adequate that when an asset is shown, the income (which springs out of the asset) need not be shown?

Scope of Black Money Act has been specified under section 4 read with section 2(12) under which any income from a source outside India which is not disclosed in the ITR shall be treated as undisclosed foreign income. Mere disclosure of foreign assets is not sufficient but income from any source outside shall also be disclosed in the ITR. Here, disclosure does not mean disclosing the assets/income in the Schedule FA but including such income in the total income for the purpose of computation of tax liability in India. Hence, there are high chances that foreign income which is not included in the total income in India to be considered as undisclosed foreign income and thus attracting the provisions of Black Money Act.

• Can the authorities attach a bank account pending conclusion of proceedings?

Modes of recovery under the Black Money Act has been clearly provided under section 30- section 40. The said recovery proceedings starts only when the notice of demand under section 13 is issued by the tax authority. Hence, it may not be possible to attach the bank account unless the proceedings under the Black Money Act have been completed and notice of demand is issued.

• Can the authorities in a routine manner initiate prosecution proceedings?

From the reading of various provisions of the Black Money Act, it can be understood that these provisions are very stringent in nature. Initiation of prosecution has been provided under Chapter V of the Black Money Act which states that prosecution may be initiated when there is wilful violation of the provisions of the Act. However, the Black Money Act presumes such culpable mental state of the assessee, and such person has to prove in the court of law that there is no culpable mental state. Given the above, in certain circumstances, when the foreign income is duly included in the ITR and tax has been paid but such income is not disclosed in the Schedule FA, these failures do not seem to be valid grounds for initiation of prosecution. However, when the assessee willfully fails to include the foreign income in the total income, there are high chances of initiation of prosecution.