Tax Evasion is an illegal act of deliberately reducing or avoiding a tax liability by concealing income or misrepresenting facts to the tax authorities, which is a criminal offense in India. The primary law governing this is the Income Tax Act, 1961, which replaced the Income Tax Act of 1922. Key provisions include Section 276C, which penalizes a willful attempt to evade tax, and Section 277, which addresses making a false statement in verification. Penalties for willful tax evasion can include rigorous imprisonment for a term of up to seven years.
Black Money is a concept, not a single legal provision, referring to income or assets that are not disclosed to tax authorities and on which applicable taxes have not been paid. It can originate from illegal activities or from legal income that is concealed to evade taxation. The term is not formally defined in the Income Tax Act, 1961.
The problem of undisclosed foreign income and assets led to the creation of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (BMA, 2015), which received Presidential assent on May 26, 2015. This Act specifically targets undisclosed foreign income and assets of Indian residents. The BMA, 2015, imposes a flat tax rate of 30% on undisclosed foreign income or assets, along with a penalty of 90% of the tax payable for non-disclosure. Willful evasion under this Act can lead to imprisonment of up to ten years.
Black Money and Tax Evasion are closely connected to the Prevention of Money Laundering Act, 2002 (PMLA), which was enacted to combat the transformation of illegal income into legitimate profits. The offense of willful attempt to evade tax in relation to undisclosed foreign income/assets under the BMA, 2015, is a Scheduled Offence under the PMLA, 2002. The PMLA empowers the Enforcement Directorate (ED) to take action, including the provisional attachment of assets, against the proceeds of crime. Other related laws include the Benami Transactions (Prohibition) Act, 1988 (amended in 2016), and the Fugitive Economic Offenders Act, 2018.