[Opinion] Applicability of the Provisions of the Black Money Act on ESOP

Ruchesh Sinha & Rakesh Kumar – [2024] 159 taxmann.com 590 (Article)

Introduction

Under the aegis of the Income Tax Act, 1961 a more stringent enactment i.e. Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (Black Money Act) has been notified w.e.f 1st July, 2015. The Black Money Act has been enacted to deal with the issue of black money i.e., undisclosed foreign income and assets and the procedure for dealing with such income and assets and to provide for imposition of tax on any undisclosed foreign income and assets held outside India and for matters connected therewith or incidental thereto. The Black Money Act is a complete code in itself, however the jurisprudence of the same is yet to tested by the Courts and the same is still developing.

Time Limit to Declare the ‘Foreign Assets’ Have Already Gone By

As per section 59 of the Black Money Act, any person may make on or after the date of commencement of the Act but before such date to be notified by the Central Government, a declaration in respect of any undisclosed asset located outside India. In exercise of the powers conferred by Section 59, the Central Government appointed 30th day of September, 2015 as the date on or before which a person may make a declaration in respect of an undisclosed asset located outside India and 31st day of December, 2015 as the date on or before which such person should pay the tax and the penalty on such undisclosed asset located outside India and so declared. Admittedly, both these dates have already ended a long time back. Meaning thereby, whatever was required to be done, whether done or not cannot be done now.

ESOP

The Employee Stock Ownership Scheme (‘ESOP’) has decades long history. To state in brief, ESOP in common parlance, is a generic term representing a basket of incentives or investments meant for employees of a corporate entity. Typically, it is part of a compensation package, where shares will vest over a period of time. ESOP’s are designed so that employees motivations and interests are aligned with those of the company’s shareholders. It can be said basically that ESOP’s is a kind of asset earned by an employee.

For the purpose of the present article, it is suffice to state that if the ESOPs are allotted by foreign parent companies to their Indian employees these are technically to be considered as “foreign assets” in the hands of such Indian employees. Accordingly, these ESOP’s, may have to be disclosed in the foreign holdings under “Schedule FA” of the income tax return. These disclosure requirements are applicable to a resident taxpayer, viz. the Indian Employees. The natural corollary is that if such ESOP’s are issued/allotted by a foreign company in the form of shares of its company and the same remain undisclosed while filing the income tax return, this may attract the provisions of the Black Money Act.

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