Cabinet Approves Bill To Tackle Black Money

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arun jaitley BudgetIndiaCSR News Network

NEW DELHI: The cabinet on Tuesday approved a bill to tackle black money (or unaccounted money on which tax has not been paid) as the government gets serious about addressing an issue that was part of its election campaign and on which the Supreme Court ordered the creation of an investigative team.

The Undisclosed Foreign Income and Assets (imposition of new tax) bill will be tabled in the Lok Sabha in the ongoing budget session of Parliament after it receives the President’s nod, said a senior government official who did not wish to be identified.

The cabinet also gave its nod for India to join the Multilateral Competent Authority Agreement for automatic exchange of financial account information—a move that will enable the government to receive information from the US and other countries about assets of Indians held abroad including through entities in which Indians are beneficial owners.

In a meeting on Tuesday, the cabinet also approved the inter-governmental agreement between India and the US for implementation of the latter’s Foreign Account Tax Compliance Act. This will help Indian financial institutions avoid a 30% withholding tax on their US income.

The new black money bill is expected to make it easy for India to take tax evaders to task. The government’s drive to do this has been constrained by secrecy clauses under various information exchange and double taxation avoidance agreements.

During his budget speech, finance minister Arun Jaitley announced the government’s intention to bring in a new law to deal with black money stashed abroad, along with strengthening the Benami Transactions (prohibition) bill for checking domestic black money, enabling confiscation of so-called benami property (where a person is a beneficial owner without having his or her name mentioned anywhere). Key features of the new legislation include imprisonment of up to 10 years for concealment of foreign assets and income and evasion of tax in relation to foreign assets

In addition, such offences will be non-compoundable; evaders will not have the option to approach the income tax settlement commission for relief; and a penalty of 300% of the tax will be levied. Non-filing of returns or filing of returns with inadequate disclosure of foreign assets will also be liable for prosecution with rigorous imprisonment of up to seven years. In addition, any undisclosed foreign asset or income will be taxable at the maximum marginal rate.

Banks and financial institutions that abet concealment will also be liable for punishment. In addition, Indians will have to mandatorily disclose the date of opening up of foreign bank accounts. The government also plans to amend the Prevention of Money Laundering Act, 2002 (PMLA), and the Foreign Exchange Management Act, 1999 (FEMA), to make concealment of income punishable.

The offence of concealment of income or evasion of tax in relation to a foreign asset will be made a predicate offence—a crime that leads to money laundering—under PMLA, enabling enforcement agencies to attach and confiscate unaccounted assets held abroad and prosecute people laundering black money.

The definition of “proceeds of crime” under PMLA will also be amended to enable attachment and confiscation of equivalent assets in India, where the asset located abroad cannot be forfeited. FEMA will be amended to facilitate seizure and eventual confiscation of assets of equivalent value situated in India in case of concealment.

The government plans to provide a short compliance window to evaders to bring back money stashed abroad, revenue secretary Shaktikanta Das said in an interview earlier this month. They will have to pay interest and penalty but will be spared a jail term, he said. The cabinet also cleared the payment of Rs.33,000 crore of central sales tax compensation due to states for the years 2010-11, 2011-12 and 2012-13 over three years beginning 2014-15.

The government made an allocation of Rs.10,800 crore for similar payment to the states in 2014-15 and provided Rs.15,000 crore in 2015-16. This is expected to address the trust deficit issue of states and pave the way for the early implementation of the unified goods and services tax.

“The steps announced will help in curbing black money. Making the law is the first step but effective implementation is key along with ensuring that there are sufficient safeguards”said Rahul Garg, leader of direct tax practice at PricewaterhouseCoopers, a consulting firm.”Signing of the multilateral convention will ensure that the Indian government automatically gets financial information about its citizens from other countries from 2017”  he said. The multilateral convention has so far been signed by 52 countries.

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