It is a well-known fact that black money exists in both domestic and international markets. The Government of India (GOI) has been keen on reducing its circulation and to bring the same to the tax net. Over the past year, numerous steps have been initiated by the GOI toward this extent. Few of them are discussed below
The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (BMA)
BMA was introduced to bring back overseas income and assets, which were undisclosed in the tax return. The said legislation is applicable to any person (as defined under Income-tax Act, 1961) qualifying as Residents and Ordinary Residents (RORs). The GOI has issued FAQs from time to time, clarifying reporting requirements, valuation mechanism etc.
For instance, if you are an ROR and have acquired assets outside India (such as bank accounts, immovable properties or investments) out of income, which was chargeable to tax in India but not offered to tax will attract tax along with penal consequences. Moreover, at the discretion of Revenue Authorities, criminal proceedings are likely to be initiated, which may lead to imprisonment.
In case of ROR tax payers, overseas assets are required to be disclosed in tax returns even if acquired from income not chargeable to tax in India. Failing this compliance, applicable penalty will be levied under BMA.
Considering the stringent provisions introduced in BMA, the GOI had given a last chance by providing three month-compliance window to voluntarily disclose overseas undisclosed assets relating to the financial year prior to 2015–16. A total of 644 declarations were made under the compliance window resulting in income/asset disclosure of INR41.64 billion and tax and penalty collection of INR24.28 billion (Press Release dated 6 January 2016).
While the GOI has introduced BMA to address the issue of black money outside India, it has also been focusing on exchange of information with various countries. The need to exchange relevant information on a bulk basis, freely and automatically, to address the problem of offshore tax evasion and avoidance has been acknowledged internationally.
Inter-Governmental Agreement (IGA) between India and the US and Multilateral Competent Authority Agreement (MCAA)
The GOI, in order to obtain information from various countries, has signed both bilateral and multilateral agreements. Such agreements are re-affirmation of the shared commitment of India and rest of the world toward tax transparency and the fight against tax evasion and avoidance.
These agreements are likely to allow two-way systematic communication for exchange of information and have been designed with a broad scope to ensure that the information is exchanged automatically.
Quoting of Permanent Account Number (PAN)
The GOI’s objective to curb black money is not just confined to what has been kept outside India, the focus even lies on the income in India but unaccounted for in the tax returns. The GOI has amended the income-tax rules for improved reporting and widening the tax base. The amendments have been brought in for mandatory quoting of PAN and annual reporting, for certain specified transactions.
The Finance Ministry announced the requirement of furnishing of PAN for all sales and purchase of goods and services where payment exceeds INR 200,000 irrespective of mode of payment.
Reportable transactions for quoting of PAN and annual reporting (illustrative and not exhaustive):
- PAN: opening of a demat account; payment of life insurance premium exceeding INR 50,000; purchase/sale of motor vehicles (other than two wheeler)
- Annual reporting: purchase or sale of immovable property exceeding INR 3,000,000 according to agreement or as valued by stamp duty authority; purchase of mutual funds units exceeding INR1,000,000 in a financial year (Inspector General/Registrar or sub-registrar appointed under Registration Act; mutual fund institutions)
In order to reduce burden of compliance on legitimate transactions, certain relaxations have been provided by the GoI. For instance, the monetary limit of quoting PAN for sale or purchase of immoveable property has been raised to INR 1,000,000 from INR 500,000.
The above measures are in the right direction, which aim for reduction of circulation of black money through widening of tax base. These measures are likely to provide increased benefits to genuine taxpayers.