Section 2 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Section 2 is the dictionary of the Act. It has fifteen clauses and decides who is an assessee, what counts as an undisclosed asset located outside India, and what the Act means by undisclosed foreign income and asset. Everything below is read from the Act as enacted and published in the Gazette of India on 27 May 2015.
An assessee is a person who is a resident other than not ordinarily resident under section 6(6) of the Income-tax Act, 1961, as printed. An undisclosed asset located outside India is an asset (including financial interest in any entity) located outside India, held in the assessee's name or in respect of which he is a beneficial owner, where he has no explanation about the source of investment or the Assessing Officer finds the explanation unsatisfactory. Undisclosed foreign income and asset combines undisclosed income from a foreign source and the value of such an asset, as section 4 describes and section 5 computes.
Who is covered: clauses (2), (7), (10) and (13)
The most important clause for readers is clause (2). It says "assessee" means "a person, being a resident other than not ordinarily resident in India within the meaning of clause (6) of section 6 of the Income-tax Act, by whom tax in respect of undisclosed foreign income and assets, or any other sum of money, is payable under this Act and includes every person who is deemed to be an assessee in default under this Act".
The phrase "resident other than not ordinarily resident" is a double negative. Read plainly, it means a person who is a resident and who is not in the "not ordinarily resident" category. A non-resident is outside it, and so is a resident who is not ordinarily resident. The clause keeps the Act's own words, so that is how it is quoted here. For the residential-status tests themselves, see our income-tax guides, such as the guide on residential status under section 6 and the note on resident but not ordinarily resident status; this Act takes no test from them beyond naming section 6.
Clause (10) separately defines "resident" as a person who is resident in India within the meaning of section 6 of the Income-tax Act. Clause (7) defines a "participant": a partner in relation to a firm, or a member in relation to an association of persons or body of individuals. Clause (13), which the Gazette splits across a page header, defines an "unincorporated body" as a firm, an association of persons, or a body of individuals. Participants and unincorporated bodies matter for sections 35 and 36 on joint and several liability.
If you are returning to India, or are an NRI whose residential status is about to change, this definition decides whether the Act reaches you at all, which is why status is worth settling first. Our NRI tax filing team helps with that step.
What is covered: clauses (11), (12) and (14)
Clause (11) defines an "undisclosed asset located outside India". It has four moving parts.
| Part of the clause | What it says |
|---|---|
| The asset | An asset (including financial interest in any entity) located outside India |
| The link to the assessee | Held by the assessee in his name, or he is a beneficial owner of it |
| The test of explanation | He has no explanation about the source of investment in the asset |
| The alternative test | Or the explanation he gives is, in the opinion of the Assessing Officer, unsatisfactory |
So the definition turns on the source of the investment, not on the asset type alone. The clause does not list assets, and this article does not extend it: it speaks only of "an asset (including financial interest in any entity)" located outside India. The words "in the opinion of the Assessing Officer" show that the officer's assessment of the explanation is part of the test, and that is why section 10 on assessment matters in practice.
Clause (12) defines "undisclosed foreign income and asset" as "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, and computed in the manner laid down in section 5". Our articles on section 4 and section 5 take those two cross-references forward.
Clause (14) says "value of an undisclosed asset" has the meaning given in section 3(2). That sub-section, as enacted, speaks of fair market value determined in the manner prescribed; see section 3.
When: clauses (3), (4) and (9)
Clause (3) says "assessment" includes reassessment. Clause (4) defines "assessment year" as the period of twelve months commencing on the 1st day of April every year. Clause (9) defines "previous year" in four cases, each ending with the words "and which immediately precedes the assessment year".
- From the date of setting up a business to its closure or the 31st day of March following, whichever is earlier.
- From the date a new source of income comes into existence to the closure of the business or the 31st March following, whichever is earlier.
- From the 1st day of the financial year to the discontinuance of a business (other than that in (b)), or the dissolution of an unincorporated body or the liquidation of a company.
- In any other case, the twelve months commencing on the 1st day of April of the relevant year.
For most individuals, the fourth limb applies and the previous year is a twelve-month period starting on 1 April.
The remaining clauses
- Clause (1): "Appellate Tribunal" means the Appellate Tribunal constituted under section 252 of the Income-tax Act.
- Clause (5): "Board" means the Central Board of Direct Taxes constituted under the Central Boards of Revenue Act, 1963.
- Clause (6): "Income-tax Act" means the Income-tax Act, 1961.
- Clause (8): "prescribed" means prescribed by rules made under this Act. The Rules of 2015 were notified on 2 July 2015.
- Clause (15): any word used but not defined in this Act, and defined in the Income-tax Act, has the meaning assigned in that Act. The clause is printed with a stray "and" ("not defined and defined in the Income-tax Act"); it is read here as the Act's own words and not corrected.
An example
Meera Nair, an individual who is a resident other than not ordinarily resident, holds a brokerage account in a foreign country in her own name. When asked, she cannot explain the source of the money invested. On the clause (11) test, the account is an "undisclosed asset located outside India" because she is the holder and has no explanation about the source of investment. If she did give an explanation and the Assessing Officer found it unsatisfactory, the second limb of the same clause would apply instead. This is an illustration of the definition only; whether tax is charged depends on the other sections.
Need help with understanding whether the Act reaches you?
Residential status, beneficial ownership and the source of a foreign investment are the facts that decide whether these definitions apply to you. If you are an NRI, a returning resident or a family with overseas holdings, our NRI tax filing team can sort out your status and your records of foreign holdings with you.
Key takeaways
- An assessee is a resident other than not ordinarily resident under section 6(6) of the Income-tax Act, 1961, as printed.
- An undisclosed asset located outside India turns on the absence of an explanation of source, or an explanation the Assessing Officer finds unsatisfactory.
- Financial interest in any entity is part of the asset definition.
- "Value of an undisclosed asset" takes its meaning from section 3(2).
- Previous year and assessment year follow the April-to-March pattern in clauses (4) and (9).
- Later Finance Act amendments to section 2 must be checked before acting. The references to the Income-tax Act, 1961 are as printed in 2015; the corresponding provision of the current income-tax law should be checked, and so should the Central Boards of Revenue Act, 1963 named in clause (5).
Read next
- Black Money Act: undisclosed foreign income, an overview
- Section 3: charge of tax on undisclosed foreign income and asset
- Section 4: scope of total undisclosed foreign income and asset
- Residential status under section 6 of the Income-tax Act
Disclaimer: Based on the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 as enacted and published in the Gazette of India on 27 May 2015, and on the Rules of 2015 as notified on 2 July 2015, as consulted on 2 October 2026. Later Finance Act amendments, amendment rules and the current income-tax law should be checked. This article is general information, not legal advice; check the official text before acting.