MARCH 06, 2015

By Neeru Ahuja & Ekta Chopra, Deloitte Haskins & Sells LLP 

INDIA is a resource-rich country that has the potential to generate enough revenue to support its burgeoning population of approximately 1.27 billion. However, one of the biggest challenges that the country confronts is that of laundering of money, commonly referred to as black money, which is significantly impacting the growth of the Indian economy. Over the years, this issue has become a part of the political agenda in India and is one of the top priorities for the current government. However, combating unaccounted money and tax evasion in such a large economy is a mammoth task. To deal with this issue, the Indian government had taken numerous initiatives in the past. The initiatives taken by the new government are yielding positive results and there is hope on resolving the black money issue, both at the international and domestic level.

At the international level, as published on the home page of Embassy of India, Berne (www.indembassybern.ch), a delegation led by Shaktikanta Das, the Revenue Secretary of India had visited Switzerland on 15th October 2014 in order to discuss with the Swiss Finance and Tax Authorities issues relating to Exchange of Information in tax matters. The discussions yielded positive results and the Swiss Government had indicated willingness to provide information on cases where investigations have been carried out by the Indian Income tax Department independently. A significant break-through in this regard is that the Swiss authorities have agreed to confirm details of bank accounts and other information related to it. This is indeed a big achievement as this would give the government concrete evidence to back their investigations and slowly make inroads to curbing this problem at an international level.

The Finance Minister has proposed to introduce a bill in Parliament to specifically deal with black money in the international context. The proposed bill will have the following key features:

•  Concealment of any income, assets and evasion of tax in relation to foreign assets would attract imprisonment of up to 10 years; penalty can be levied at the rate of 300%.

•  The offenders will not be permitted to approach the Settlement Commission.

•  Non filing of return /filing of return with inadequate particulars would attract imprisonment of 7 years.

•  Income in relation to any undisclosed foreign asset or undisclosed income from any foreign asset would be taxable at maximum marginal rate.

•  Mandatory filing of return by beneficial owner or beneficiary of foreign asset.

•  Concealment of income/evasion of income in relation to foreign assets to be made a predicate offence under PML (Prevention of Money Laundering) Act, 2002.

At the domestic level also, the government has taken requisite measures to resolve this problem. The Finance Minister (FM) in his budget speech has referred to the introduction of a Benami Transactions (Prohibition) Bill which will deal with the generation and holding of black money in the form of benami property, especially in real estate. PAN is now mandatory for any purchase or sale exceeding the value Rs.1 lakh.

It is also proposed to amend the existing provisions of the Income tax Act with a view to curb generation of black money. The amended sections provide that no person shall accept or repay an advance of Rs. 20,000 or more, in cash, for purchase of immovable property. Failure to comply with above amended provisions will attract penalty and accordingly related penalty provisions are also proposed to be modified.

The above proposed amendments can be seen as a welcome move by the government and would result in more disciplinary action against tax evaders. However, the real picture is yet to be seen, which will depend upon the way the proposed law will be framed and implemented. We see this as a roadmap towards the goal to eradicate circulation of illegal money, which could actually be used for the development of the country and benefit of Indian citizens.