The importance of dealing with the problem of black money has been visible in the Government's agenda, with the issue being mentioned during the presentation of the Union Budget too.
A two-pronged approach to curb black money is on the cards-the first deals with black money stashed overseas. While some ground work has already been executed in this regard, there are promises of more to follow. The second is on tackling domestic black money. Comprehensive laws are expected to emerge in the near future based on press statements made recently by senior personnel in the Ministry of Finance.
COMPREHENSIVE BILL TO BRING BACK BLACK MONEY STASHED ABROAD
The Foreign Exchange Management Act (FEMA) regulations allow Indian residents to invest overseas. Further, investments made overseas while an individual was a non-resident Indian can also be held overseas after repatriation. However, the source of these investments should have been taxed as prescribed by the Indian tax laws.
Moreover, the income generated from such investments must also be taxed in the hands of residents. In order to have a sight on such assets overseas, suitable disclosure needs to be made in tax returns filed by residents. The Government had introduced reporting of foreign assets by resident and ordinarily residents in The Finance Bill, 2012. The reporting requirements were comprehensive and included financial interest in any entity or signing authority in any account outside India.
However, investigations carried out by the tax authorities revealed lax compliance with the law and it was perceived that harsher measures were required.
A comprehensive Bill, introduced in the Budget session of the Parliament, takes steps in this regard by including a slew of measures to rein in black money.
The Bill aims to make concealment of income and assets and evasion of tax in relation to foreign assets prosecutable with rigorous imprisonment up to 10 years. Further, the offence will be made non-compoundable and the offenders will not be permitted to approach the Settlement Commission.
A penalty of 300% of the tax shall be levied for such concealment of income and assets. Also, non-filing of return or filing of return with inadequate disclosure of foreign assets will be liable for prosecution with punishment of rigorous imprisonment up to seven years. Income in relation to any undisclosed foreign asset or undisclosed income from any foreign asset will be taxable at the maximum marginal rate with no exemptions or deductions.
AMENDMENT TO EXISTING LAWS
The concealment of income or evasion of tax in relation to a foreign assets would be made a predicate offence under the Prevention of Money-laundering Act. This would enable the enforcement agencies to attach and confiscate unaccounted assets held abroad and launch prosecution against the defaulters. Further, the definition of 'proceeds of crime' would be amended to enable the confiscation of equivalent asset in India where the asset located abroad cannot be forfeited.
CURBING DOMESTIC BLACK MONEY
The Finance Minister proposes to introduce a new and comprehensive Benami Transactions (Prohibition) Bill in the Budget session of the Parliament. This will enable confiscation of Benami property and block a major avenue for generation and holding of black money, especially in real estate.
With a view to curb the generation of black money in real estate, the Budget proposes to amend the provisions of Section 269SS and 269T of the Income-tax Act so as to prohibit acceptance or re-payment of advance in cash of Rs 20,000 or more for any transaction in immovable property. It is also proposed to provide a penalty of an equal amount in case of contravention of such provisions. To discourage cash transactions, quoting of PAN will be made mandatory for any purchase or sale exceeding the value of Rs 1 lakh.
IMPLEMENTATION IS THE KEY
The introduction of stringent laws against defaulters will help the Government widen the tax base. Implementation of these proposals is the key as they may be rendered ineffective if not supported by advanced information gathering systems. The increased compliance requirements, however, can end up making individuals and investors anxious.
The Government's aim is to foster a stable taxation policy and non-adversarial tax administration. This aspect will play a major role in the implementation of the proposed drive against black money. But the new laws should not offer unrestrained powers to the tax investigators as such a move may dampen the investment climate of the country. The Government should ensure that an honest taxpayer is not caught in the web of these stringent laws.
(The author, Tapati Ghose, is a partner at Deloitte Haskins & Sells)