Black money refers to income or assets on which applicable taxes have not been paid and which have not been disclosed to the tax authorities. Under Indian law, the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 specifically targets undisclosed foreign income and assets, imposing a flat tax rate of 30% and a penalty equal to 90% of the undisclosed income, while the Income Tax Act, 1961 addresses domestic undisclosed income through Sections 68-69D and penalty provisions.
Legal definition
The Black Money Act, 2015 provides statutory definitions for undisclosed foreign income and assets:
Section 2(1) — "Undisclosed asset located outside India": means an asset (including financial interest in any entity) located outside India, held by the assessee in his name or in respect of which he is a beneficial owner, and he has no explanation about the source of investment in such asset or the explanation given by him is not satisfactory.
Section 2(12) — "Undisclosed foreign income and asset": means the total amount of undisclosed income of an assessee from a source located outside India and the value of an undisclosed asset located outside India, referred to in Section 4.
Under the Income Tax Act, 1961, unexplained domestic income is addressed through:
Section 68: Cash credits — where any sum is found credited in the books of an assessee, it may be charged to tax as income if the assessee offers no explanation about the nature and source thereof.
Section 69: Unexplained investments — where the assessee has made investments not recorded in books and offers no satisfactory explanation.
Section 69A: Unexplained money, bullion, jewellery, or other valuable articles found in the possession of the assessee.
How courts have interpreted this term
Union of India v. Gautam Khaitan [(2020) 420 ITR 140 (SC)]
The Supreme Court upheld the validity of the Removal of Difficulties Order issued under the Black Money Act, 2015. The Court overturned an interim order of the Delhi High Court that had restrained authorities from taking action against Khaitan under the Act, holding that the Central Government had properly exercised its powers to remove difficulties and enable assessees to take advantage of the one-time compliance window under the Act.
CIT v. P. Mohanakala [(2007) 291 ITR 278 (SC)]
The Supreme Court examined the scope of Section 68 (cash credits) and held that when the assessee fails to prove the identity, creditworthiness, and genuineness of transactions involving credits in their books, the Assessing Officer is justified in treating such credits as unexplained income. The Court held that the initial burden to prove the source and nature of credits lies on the assessee, and mere production of documents without establishing genuineness is insufficient.
Why this matters
Black money has been a persistent challenge in the Indian economy, with significant implications for tax revenue, economic inequality, and the integrity of the financial system. The government has enacted multiple legislative measures to combat the generation and concealment of black money: the Black Money Act, 2015 (targeting foreign assets), the Benami Transactions (Prohibition) Amendment Act, 2016 (targeting assets held in the names of others), demonetisation in November 2016, and progressive tightening of cash transaction limits under the Income Tax Act.
For individuals and businesses, the consequences of holding undisclosed income or assets are severe. Under the Black Money Act, 2015, undisclosed foreign income and assets attract tax at 30% plus a penalty of 90% of the undisclosed income — an effective rate of 120%. Non-disclosure also attracts prosecution with rigorous imprisonment of 3 to 10 years under Section 51. Under the Income Tax Act, unexplained domestic income under Sections 68-69D is taxed at 78% (60% tax plus 25% surcharge plus 4% cess) under Section 115BBE, with additional penalty under Section 271AAC.
For practitioners, the critical distinction lies between "unexplained" income (where the source cannot be satisfactorily explained) and income that was disclosed but on which taxes were evaded. The former attracts the penal tax rates under Section 115BBE, while the latter attracts penalties and prosecution under the regular provisions. The Assessing Officer must first provide an opportunity to the assessee to explain the source before invoking these penal provisions.
Related terms
Related concepts:
Enforcement mechanisms:
Frequently asked questions
What is the penalty for holding undisclosed foreign assets?
Under the Black Money Act, 2015, undisclosed foreign income and assets are taxed at 30%, with an additional penalty equal to 90% of the undisclosed income under Section 43, making the effective levy 120% of the undisclosed amount. Wilful failure to disclose foreign assets also attracts prosecution with rigorous imprisonment of 3 to 10 years and a fine under Section 51.
What is Section 115BBE and how does it apply to black money?
Section 115BBE of the Income Tax Act, 1961 prescribes a flat tax rate of 60% (plus 25% surcharge and 4% cess, totalling 78%) on income referred to in Sections 68, 69, 69A, 69B, 69C, and 69D — that is, unexplained cash credits, investments, money, and expenditure. No deduction for any expenditure or allowance is permitted against such income. This provision was amended by the Taxation Laws (Second Amendment) Act, 2016 (effective from 1 April 2017).
Is there any voluntary disclosure scheme for black money?
The government periodically introduces compliance windows. The Income Disclosure Scheme (IDS), 2016 allowed domestic black money holders to declare undisclosed income by paying 45% tax plus penalty. The Black Money Act, 2015 included a one-time compliance window in 2015. Currently, no such scheme is active, and all undisclosed income is subject to the penal rates under the applicable provisions.
This entry is part of the Veritect Indian Legal Glossary, a comprehensive reference of Indian legal terminology grounded in statutory text and judicial interpretation.
Last updated: 2026-03-27. Veritect provides this content for informational purposes and does not constitute legal advice.