The Government has taken several steps to effectively tackle the issue of black money, particularly black money stashed away abroad. They include policy-level initiatives, more effective enforcement action on the ground, putting in place robust legislative and administrative frameworks, focus on capacity building and better capture and use of information through ICT and data mining. Recent major initiatives in this regard include:
Constitution of the Special Investigation Team (SIT) on Black Money under Chairmanship and Vice-Chairmanship of two former Judges of Hon’ble Supreme Court
Enactment of a comprehensive law to tackle black money stashed away abroad – ‘The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015’ which has come into force w.e.f. 01.07.2015
Constitution of Multi-Agency Group (MAG) consisting of officers of Central Board of Direct Taxes (CBDT), Reserve Bank of India (RBI), Enforcement Directorate (ED) and Financial Intelligence Unit (FIU) for investigation of recent revelations in Panama paper leaks
Proactively engaging with foreign governments with a view to facilitate and enhance the exchange of information under Double Taxation Avoidance Agreements (DTAAs)/Tax Information Exchange Agreements (TIEAs)/Multilateral Conventions
Participation in global efforts to combat tax evasion/black money by joining the Multilateral Competent Authority Agreement in respect of Automatic Exchange of Information (AEOI) and entering information sharing arrangement with USA under its Foreign Account Tax Compliance Act (FATCA)
Renegotiation of DTAAs with other countries to bring the Article on Exchange of Information to International Standards and expanding India’s treaty network by signing new DTAAs and TIEAs with many jurisdictions to facilitate the exchange of information and to bring transparency
Amendment of the Prevention of Money-laundering Act, 2002 in 2015 enabling attachment and confiscation of property equivalent in value held within the country where the property/proceeds of crime has been taken or held outside the country
Enactment of the Benami Transactions (Prohibition) Amendment Act, 2015 to amend the Benami Transactions (Prohibition) Act, 1988 with a view to enable confiscation of Benami property and provide for prosecution
Initiation of ‘Project Insight’ by the Income Tax Department to enforce better tax compliance through effective use of available information. These measures and sustained and prompt action by the Income Tax Department have resulted in bringing to tax substantial amounts of undisclosed income, levy of concealment penalty and filing of criminal prosecution complaints for various offences in appropriate cases.
The Special Investigation Team (SIT) on Black Money: The SIT on Black Money was constituted by the Government in May 2014 in compliance with the directions of Hon’ble Supreme Court. The Chairman and Vice-Chairman of SIT are Hon’ble Justices Shri M.B. Shah & Shri Arijit Pasayat respectively. Members include – Secretary(Revenue); Dy. Governor, RBI; Chairman, CBDT; Director, Cabinet Secretariat; Director, ED; DG, NCB; DG, DRI; Director, FIU and JS(FT&TR-I), CBDT. Monitoring of investigations into cases involving black money /undisclosed income, ensuring better coordination between enforcement agencies and review of legal and administrative framework to prevent generation of black money are some of the functions being undertaken by the SIT. It has so far submitted 5 reports to the Hon’ble Supreme Court.
Enactment of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015’ (BMA): Recognizing limitations of the existing legislations in bringing back black money held by Indian entities abroad, the Government enacted a stringent new law to specifically deal with the issue. The new law – ‘The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015’ came into force w.e.f. 01.07.2015. Its features include (i) Separate taxation of undisclosed foreign income and assets (ii) stringent penalty for concealment (iii) stringent prosecutions provisions allowing rigorous imprisonment up-to 10 years with fine (iv) tax evasion a non-compoundable offence (v) wilful attempt to evade tax in relation to undisclosed foreign income/assets a Scheduled Offence under the Prevention of Money-laundering Act, 2002 (PMLA).
One-time compliance window for declaration of Undisclosed foreign assets/income: A one-time compliance window of 3 months was extended to taxpayers as an opportunity to make declarations of their undisclosed foreign assets before being subjected to the stringent provisions of the BMA. A total of 648 taxpayers filed declarations up-to 30.09.2015 leading to disclosure of foreign assets worth Rs.4164 crore.
Amendment of the Benami Transactions (Prohibition) Act, 1988: The Benami Transactions (Prohibition) Amendment Act, 2016 has been enacted w.e.f. August 2016 by the Government to deal with domestic black money. The Act enables confiscation and management of Benami property and provides for prosecution, to enable prevention of generation and holding of black money as Benami property.
Other anti-evasion legislative measures:
i. Scope of TDS on interest on bank deposits extended by bringing the interest on recurring deposits within its ambit and TDS on interest to be made bankwise. [Finance Act, 2015]
ii. TCS at the rate of 1% on payment for sale of goods or provision of services exceeding two lakh rupees in cash. [Finance Act, 2016]
iii. General Anti-Avoidance Rules (GAAR), to enable the tax authorities to neutralize the tax advantage obtained through shell companies/companies in tax havens introduced in Finance Act, 2013. Government reiterated its commitment for implementing GAAR from Assessment Year 2018-19.
iv. Sections 269SS, Section 269T, Section 271D and Section 271E of the Act were amended to prohibit acceptance of any payment, repayment of advance of Rs.20,000 or more, otherwise than by an account payee cheque or account payee bank draft or by banking clearing system in relation to transfer of an immovable property by providing penalty of an equivalent amount. [Finance Act, 2015]
v. Amendment in Rule 114B of the Income Tax Rules (the Rules) in 2015 whereby quoting of PAN has been made mandatory for sale or purchase of goods or services above Rs. 2 Lakh. [2015]
vi. Amendment of Rule 114E of the IT Rules to strengthen third party reporting mechanism to allow annual aggregate of the transaction values to trigger reporting of transactions. [2015]
vii. Amendment of section 6 of IT Act, to enable determination of residence of a company incorporated in a foreign jurisdiction on the basis of “place of effective management” (POEM) [Finance Act, 2016]
viii. Country-by-country reporting requirements for MNCs have been introduced to address Base Erosion and Profit Shifting. [Finance Act, 2016]
Streamlining of information collection system: AIR reporting regime has been replaced with the Statement of Financial Transaction (SFT) and has been expanded to cover a larger segment of transactions including personal consumption expenditure. The new rule 114E regarding furnishing of SFT has come into effect from 1.4.2016. This new regime will enable capture of high value cash transactions in select sectors, lead to widening of tax base through identification of new tax payers, non-filers and stop filers, curb tax evasion in a non-intrusive manner and encourage use of plastic money.
Investigation in HSBC foreign bank accounts cases: Investigations based on information received from French Government on Indians holding bank accounts in HSBC bank in Switzerland has resulted into detection of considerable amount of undisclosed income. Concealment penalty of about Rs.1282 crores has also been levied in 159 cases and 164 prosecution complaints have been filed in 75 cases.
Investigation in cases revealed by International Consortium of Investigative Journalists (ICIJ): In 2013, the ICIJ, a Washington based organization, put out in public information pertaining to offshore entities based in no tax or low tax jurisdictions, including many Indian entities. Investigations of these cases by the Income Tax Department have led to detection of substantial amounts of deposits in these undisclosed foreign accounts. Investigations have led to filing of 55 prosecution complaints in 24 such cases. Investigations are also on in cases revealed in ‘Panama Papers leaks’ by ICIJ in 2016. A high level Multi-Agency Group (MAG) has been constituted for the purpose. So far, the MAG has submitted 5 reports to the Government.
The Income Declaration Scheme, 2016: The Income Declaration Scheme, 2016 (the Scheme) came into effect from 1st June, 2016. It provided an opportunity to persons who had not paid full taxes in the past to come forward and declare their domestic undisclosed income and assets. Declarations could be made online as well as in printed copies of the prescribed Form up to midnight on 30th September, 2016.
In order to facilitate the taxpayers and to spread awareness about the Scheme, the CBDT issued a number of FAQs to address various queries received. Major issues clarified included manner of declaration of fictitious liability, allowance of cost indexation and holding period benefit for registered immovable property, sanctity of valuation report etc. Difficulties with respect to payment of taxes in a short span were removed by permitting payment of tax in 3 instalments, the last being in September 2017. Absolute confidentiality was promised under the scheme in respect of the declarations made to reassure the declarants. Innovative publicity methods like Talkathons, Walkathons, Nukkad Nataks, etc. were used to spread awareness about the Scheme. The Department’s strategic use of taxpayer information and data mining techniques further spurred the declarations.
These steps resulted in a tremendous response, especially in the last two months. As a consequence, 71,726 declarations were filed up to the midnight of 30th September, 2016 with an aggregate of Rs. 67,382 Crore worth of hitherto undeclared incomes in the form of cash and other assets being declared.
Indo-Swiss Exchange of Information: India and Switzerland have an exchange of information relationship under the Indo-Swiss Double Taxation Avoidance Agreement (DTAA) and the Indian Competent Authority regularly pursues all the outstanding cases with Switzerland.
As fighting the menace of Black Money stashed in offshore accounts has been a key priority area for this Government, to further this goal, the Indian Prime Minister met with the Swiss President at Geneva on 6th June 2016 and discussed the need for expeditious exchange of information for combatting tax evasion together with an early start to negotiations on the Agreement for Automatic Exchange of Information. As a follow up, India’s Revenue Secretary and Switzerland’s State Secretary for International Financial Matters met in New Delhi on 15.06.2016 and agreed to move towards an early agreement for the implementation of AEOI between the two countries. It was also decided that experts of both the countries will meet to further discuss the modalities for the reciprocal bilateral implementation of AEOI between India and Switzerland with a view to reaching an agreement at the earliest, possibly by the end of the year. This meeting was conducted on 5-6th September 2016. The experts from both the sides agreed for the early implementation of AEOI.
Automatic Exchange of Information (AEOI): Automatic Exchange of Information is systematic and periodic transmission of “bulk” taxpayer information by the source country to the residence country, which is possible under most of the DTAAs and Multilateral Convention on Mutual Administrative Assistance in Tax Matters.
On 3rd June 2015, India joined the Multilateral Competent Authority Agreement (MCAA) on Automatic Exchange of Financial Account Information (AEOI) under the Common Reporting Standard (CRS) based on the provisions of the Multilateral Convention on Mutual Administrative Assistance in Tax Matters (Multilateral Convention). The AEOI standards are very wide in scope and oblige the treaty partners to exchange wide range of financial information after collecting the same from financial institutions in their country/jurisdictions including information about the ultimate controlling persons and beneficial owners of entities. Till now, 84 countries have signed MCAA for AEOI. 101 countries have committed for AEOI. From 2017 onwards, 54 countries will start exchanging information automatically. And from 2018 onwards, it is expected that another 47 countries will start exchanging information automatically.
Foreign Account Tax Compliance Act (FATCA): On 9th July, 2015, India and USA signed an Inter-Governmental Agreement (“IGA”) to implement the Foreign Account Tax Compliance Act (“FATCA”) of the USA to promote transparency between the two nations on tax matters. The Union Cabinet in its meeting on 17th March, 2015 approved the signing and ratification of the IGA under the provisions of the Double Taxation Avoidance Agreement (“DTAA”) between India and USA. Under the IGA, the USA will provide certain information to India, which includes the name, address and Indian TIN of any person that is resident of India and holds a reportable financial account in USA, along with the account number and gross amount of interest, US source dividends or other income paid or credited, depending on the nature of the financial account. On the similar lines, India will also provide the information to USA.
Reporting of information under the IGA with USA began from 30th September, 2015 and information pertaining to the calendar year 2014 & 2015 has already been exchanged between the two countries.
Implementation of AEOI under CRS and FATCA: For implementation of AEOI and FATCA, amendment was carried out in the Income Tax Act, 1961 through Finance Act, 2014. Vide Notification No. 62 of 2015 dated 7th August, 2015, the Income-tax Rules, 1962 have been amended by inserting Rules 114F to 114H and Form 61B. To provide guidance to the Financial Institutions and other stake holders for ensuring compliance with the reporting requirements provided in Rules 114F to 114H and Form 61B of the Income-tax Rules, 1962, a Guidance Note was issued on 31.08.2015. On this Guidance Note, feedback and comments were received from many financial institutions. Meetings were held with financial institutions, regulators and other stake holders for providing guidance for implementation. Thereafter, an updated version of the Guidance Note was released on 31.12.2015 and the latest version has been released on 31.05.2016. The new account due-diligence procedures have started from the 01.01.2016 and first reporting will be done in September 2017 for the year 2016.
Signing of the IGA with USA and India joining the MCAA are important milestones in India’s fight against the menace of black money as it would enable the Indian tax authorities to receive financial account information of Indians from foreign countries on an automatic basis. This will also enable the Government of India to receive information about taxpayers hiding their money in offshore financial centres and tax havens through multi-layered entities with non-transparent ownership from the jurisdictions that are signatories to the MCAA and committed to the international AEOI standards.
Base Erosion and Profit Shifting: Base Erosion and Profit Shifting refers to strategies adopted by taxpayers having cross-border operations to exploit gaps and mismatches in tax rules of different jurisdictions which enable them to shift profits outside the jurisdiction where the economic activities giving rise to profits are performed and where value is created. BEPS has been a cause of concern for developing and emerging economies for long as it erodes their tax base depriving them of much needed resources for developmental activities. It is also unfair to general taxpaying public and further provides an unfair competitive advantage to Multinational Enterprises (MNEs) vis-à-vis domestic companies having no opportunities for the BEPS strategies.
India participated in the BEPS Project engaging constructively and extensively by direct participation in CFA, Working Parties and Focus Groups set up under CFA in finalizing the deliverables of BEPS Package with the twin objectives of (a) collaborating with other countries in development of recommendations to prevent base erosion and profit shifting and (b) safeguarding the interests of India and other developing countries in development of new standards.
The major package of recommendations of Base Erosion and Profit Shifting (BEPS) Project, were endorsed by the G20-Leaders at Antalya, Turkey in November, 2015. However some elements of the BEPS Action Plan have yet to be finalised in 2016 and 2017 and the main tasks ahead relate to the implementation of the agreed package. India being a G-20 member country, and having played a very active role in the BEPS Project so far, is fully committed to conclusion of pending design of rules in certain Action Items and to ensure the successful implementation of the recommendations of BEPS Project in 2016, 2017.
Recently, the G-20/OECD Inclusive Framework has been constituted to monitor and review the implementation of the BEPS Package of recommendations on a global basis, with participation from all the relevant jurisdictions on an equal footing. As a follow up to the call of the G-20 Finance Ministers meeting in April 2016, the first plenary meeting of the G-20/OECD Inclusive Framework was held at Kyoto from 30th June to 1st July 2016 and the 1st meeting of the Steering Group of the Inclusive Framework held on 18-19th October, 2016.
Further, for implementation of BEPS at the local level, the Central Board of Direct Taxes in the Ministry of Finance has constituted a committee of officers to examine all the 15 reports and chalk out a clear-cut roadmap for implementing the recommendations contained in these reports. Implementation would be through amendments to the Income-tax Act, 1961 or through framing of Rules and Guidelines. Amendments based on some actions points in the BEPS Reports such as equalization levy and country-by-country reporting have already been introduced in the statute through the Finance Act, 2016.
