On the black money trail: Action time now, warns Centre

On the black money trail: Action time now, warns Centre

With the three-month window for escaping prosecution and penal provisions of the stringent law on undisclosed money abroad over, the government is working on tightening the noose. It says it has various leads, such as a scrutiny of information flow from other countries and having tax officials in Indian embassies abroad, and how many recently acquired the status of non-resident Indian (NRI).

"It is now all about enforcement. We are getting a seamless flow of information from many countries, including those considered tax havens. Many cases have come to light through information shared by Singapore. Moreover, with strengthening of 'Know Your Customer' norms in Hong Kong and West Asian countries, information access has become easier," said an official.

India has a double-taxation avoidance agreement with Singapore and more than 85 other countries. Recent information exchange treaties on tax matters with various countries will assist the government's effort. For instance, India and Seychelles signed a treaty in August during Prime Minister Narendra Modi's visit. Similar pacts have already been signed with other countries considered tax havens - Bahamas, Bermuda, British Virgin Islands, Cayman Islands, Gibraltar, Guernsey, Isle of Man, Jersey, Liechtenstein, Monaco and San Marino.

Earlier, German authorities had given India information about those having unaccounted money in the LGT Bank, Liechtenstein. France had shared with India data on those having illicit accounts with HSBC, Geneva. Officials in the finance ministry and tax experts believed that many may not have availed the compliance window on the hope that foreign banks do not have data of assets acquired there more than ten years ago. However, the ministry is looking at various other leads to nab these tax evaders.

A finance ministry official said even a receipt showing payment to a gardener for a ploughing job at a person's house in Lithuania, for instance, could be a lead during searches and raids.

"In view of technological developments and changing business dynamics, where many parts of a transaction can be traced back, it is not difficult to get past information. If any part of the transaction comes to the notice of the regulatory authorities, be it income, investment or an expense, an audit trail could be established for the past as well," said Vikas Vasal, partner, tax, KPMG.

The finance ministry will also assess as to how many Indians recently acquired the status of NRIs to escape the black money Law.

For the purpose of income tax, an individual is taken to be an NRI if having resided outside India for 182 days or more in the relevant previous year. Besides, anyone not present in India for 60 days or more the previous year and again for a combined total of 365 days or more during the previous four years prior to the previous year is also considered non-resident. An NRI is liable to be taxed only for income or capital gains earned in India.

As part of its electoral promise to unearth money stashed abroad without disclosure, the government had enacted the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, with stringent provisions to punish evaders and take more than the value of these assets. The three-month compliance window ended on September 30. During this period, any offender could have escaped the stern provisions by disclosure, attracting only a 30 per cent tax and 30 per cent penalty by December 31.

Once the Act is enforced, evaders would have to pay 120 per cent of the tax, interest and penalty, besides being liable for a jail term up to 10 years.

Even so, the Centre got only 638 declarations of black money and assets held abroad, worth Rs 3,770 crore. The tax kitty would swell by only Rs 2,262 crore, as it would get only 60 per cent of the value of these assets.

A previous amnesty, the Voluntary Disclosure of Income Scheme in 1997, yielded close to Rs 10,000 crore to the exchequer, despite only a 30 per cent tax rate imposed, without any penalty. However, the finance ministry contends that this time's compliance window should not be compared with earlier amnesty schemes, which were on domestically held money.

Experts believe there was no incentive to use the compliance window and the tax plus penalty of 60 per cent was very high, while the escape route was very easy. Also, they conceded, those not having used the window seems to have not realised the seriousness of the new law.

"People with undisclosed money abroad have taken a very big risk. The government is getting a continuous flow of information from various countries it has signed pacts with. Besides, it also has put in place mechanism to get past data," said Rakesh Nangia, managing partner, Nangia and Co.