Budget 2024: Relief to Indian professionals working in MNCs having ESOPs of Foreign Companies

Our Finance Minister Mrs Nirmala Sitaram said in her budget speech “Indian professionals working in multinationals get ESOPs and invest in social security schemes and other movable assets abroad. Non-reporting of such small foreign assets has penal consequences under the Black Money Act. Such non-reporting of movable assets up to Rs.20 lakh is proposed to be de-penalised.”

Let us understand the amendment

Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act 2015 often referred to as Black Money Act aims to address the issue of undisclosed foreign income and assets. Sections 42 and 43 of this Act are crucial as they impose penalties on residents who fail to disclose their foreign income and assets in their income tax returns (ITR).

Section 42 deals with penalties for not providing details of foreign income and assets in ITR. This section applies to residents. If such residents do not file ITR when they have assets are beneficiaries of assets located outside India, or have income from foreign sources. They face penalties under this section.

Section 43 focuses on penalties for not providing accurate details about foreign assets in ITR. Similar to Section 42. It targets residents. If individuals fail to disclose foreign assets they own or benefit from or provide inaccurate details about such assets or income from foreign sources. They are penalized under this section.

Disclosure Requirements and Penalties

All residents and ordinarily residents must disclose foreign assets and income from these assets in their ITR. This includes investments in shares and securities. If they fail to file an ITR that includes foreign income or assets or if they do not report such details accurately they face a penalty of ten lakh rupees regardless of the asset’s value.

Current Threshold and Proposed Amendment

Currently, the Act provides some relief through a proviso that exempts from penalties for those assets held in one or more bank accounts if the total balance does not exceed five lakh rupees at any point during the previous year. Many stakeholders have argued that this threshold is too low. This often leads to penalties higher than the value of the assets themselves.

To address this concern, an amendment has been proposed. Starting from October 1, 2024, the threshold will be raised. The provisions of Sections 42 and 43 will not apply to assets whose aggregate value does not exceed twenty lakh rupees. This excludes immovable property. This change aims to make penalty provisions more reasonable and fair.