BLACK MONEY presentation under the module for tax laws

black money

1. PPTs strictly for private use and educational purpose only

2. BLACK MONEY

3. Black Money - The National Institute of Public Finance and Policy (NIPFP) in its 1986 report entitled ‘Aspects of Black Economy’ has defined Black Money as aggregate of incomes which are taxable but not reported to the tax authorities

4. Finance minister Piyush Goyal said that reports on black money are available for members of a parliamentary committee, but not available for putting in public domain. The UPA government had commissioned the studies in 2011 by National Institute of Public Finance and Policy(NIPFP) and the National Council of Applied Economic Research (NCAER) and the National Institute of Financial Management(NIFM). The study reports were received by the government in the year 2013 and 2014. (Times of India – February13, 2019)

5. Existing Law in India to deal with Black Money

6. INCOME TAX ACT, 1961 Section 131 of the Income Tax Act, 1961 : The powers of the court under this section are co-existent to that of a Civil Court such as to Discovery and Inspection under Order XI, Summoning and attendance of witnesses under Order XVI and Issue of commission for the examination. Section 132 of the Income Tax Act, 1961:  The search under this section can only be authorized by an officer of the rank of the commissioner or above. The officer must adhere to certain conditions before authorizing a search. This section includes the power to seize documents, books, cash, other valuables, etc. Chapter XXI of the Income Tax Act, 1961:  There are various monetary penalties fixed at different rates for various defaults such as failure to comply with the statutory notices, Concealment of Income, Failure to maintain books of accounts, etc. The maximum amount of penalty prescribed is 300% for the amount of tax which was evaded.

7. Chapter XXII of the Income Tax Act, 1961 : It deals with the prosecution for the various offenses with regards to the deliberate evasion of tax such as failure to deduct and deposit taxes, failure to produce accounts and furnish tax returns, etc. Up to 7 years of rigorous imprisonment with a fine can be imposed on the tax evader.

8. Linking bank accounts with Aadhaar and PAN Government launched the plan to link bank accounts with Aadhaar and PAN. Income tax department got huge success in getting hold of fake or Ghost accounts. It also made it easy to track big and suspicious transactions through bank accounts.

9. BENAMI TRANSACTIONS (PROHIBITION) ACT, 1988 After the enactment of the Income Tax Act of 1961, it was observed that a lot of people had entered into benami transactions to hide from the real transactions. Benami purchase is a transaction in the name of another person, who actually does not pay any amount of consideration but only confers his name and the control of the transaction is vested with the person who paid the consideration for the purchase of the property as he is the beneficial owner. Benami Transactions (Prohibition) Amendment Act, 2016 was implemented on November 1 , 2016. Government was able to trace numerous Benami properties.

10. FOREIGN EXCHANGE MANAGEMENT ACT (FEMA), 2002 The investigations under FEMA with regards to specific cases relating to the infringement in foreign exchange transactions by persons residing in India are taken up by the Enforcement Directorate. As per Section 4 of FEMA, holding unauthorized funds outside India by a person who is the resident of India is violative of the aforesaid provision. As per Section 13(1) of the Act, an appropriate penalty can be imposed for the contravention of Section 4 of the Act. Furthermore, apart from the imposition of a penalty, as per Section 13(2), the adjudicating authority can also confiscate the amounts lying in a foreign country and direct them to bring it back into India. There is no criminal prosecution as FEMA is a civil law.

11. PREVENTION OF MONEY LAUNDERING ACT (PMLA), 2002 Prevention of Money Laundering Act is a criminal law. Under the measure of the Act, money laundering is linked to predicate schedule offenses which are liable for punishment. Section 3 of the Act defines the offense of money laundering. Once the representative concerned with the predicate scheduled offense registers a case, the Enforcement Directorate initiate an investigation under PMLA to determine the crimes generated from the predicate schedule offenses. In case of a prima-facie case, the PMLA allows for seizure and attachment of the laundered properties. Both the natural and legal entities can be prosecuted under Section 44 of PMLA by the Special Courts. Section 4 of the Act provides for rigorous imprisonment for 8 years with a fine of 5 lakhs which may extend up to 10 years if the accused has committed an offense of money laundering linked to narcotic trafficking.

12. Action against Shell Companies Acting against shell companies, Government cancelled registration of over two lakh companies. The shell companies were suspected of money laundering activities. Government stipulates that until companies meet the required parameters their directors will remain barred from transactions on behalf of the companies.

13. Problems in dealing with undisclosed foreign income/assets

14. Constitution of SIT on Black Money The SIT detected black money worth more than Rs. 70,000 crore, including 16,000 thousand rupees hidden by Indians in off shore accounts. In its interim report, SIT made several recommendations, many of which have been accepted by government.

15. The  Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 ’ that has come into force w.e.f. 01.07.2015. It provides for separate taxation of undisclosed foreign income and assets. Most importantly, apart from providing more stringent provisions for penalty and prosecution, for the first time, this law has included the offence of wilful attempt to evade tax etc. in relation to undisclosed foreign income/assets as a Scheduled Offence under the Prevention of Money-laundering Act, 2002 (PMLA).

16. Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 -The Black Money Act is a declaration scheme under which all resident taxpayers can declare the undisclosed foreign income and assets. On such undisclosed income and assets the taxpayer was required to pay up to 60% as both tax and penalty under that scheme. -The officer designated had received 638 declarations only amounting to Rs 3,770 crores of undisclosed foreign income and assets by the end of compliance window (i.e., 30th September, 2015). - The declarant under Black Money Act shall be granted immunity from penalty from all the laws for the time being in force and prosecution under the provisions of Income-tax Act and Wealth-tax Act, including Benami Transactions (Prohibition) Act, 1988.

17. FINANCIAL YEAR NO. OF SURVEYS CONDUCTED UNDISCLOSED AMOUNT DETECTED IN CRORES 2015- 2016 4428 9730 2016-2017 12520 13690 2017-2018 13547 9638

18. Income Declaration Scheme, 2016 1 JUNE 2016- 30 SEPT 2016 IDS, 2016has been designed to declare any ‘undisclosed income’ vide the Finance Act, 2016 for persons who have not paid full taxes in the past and are required to pay tax, surcharge and penalty totalling to 45% of such undisclosed income declared. Under IDS, 2016, the declaration of any ‘undisclosed income’ (i.e., domestic or foreign) Under IDS, 2016, the ‘ declarant ’ can be resident or non-resident. The declarant under IDS, 2016 shall be granted immunity from penalty from all the laws for the time being in force and prosecution under the provisions of Income-tax Act and Wealth-tax Act, including Benami Transactions (Prohibition) Act, 1988.

19. Declaration under IDS 2016 v. Sections 271 & 276C   Any wilful attempt to evade tax under the current provisions of the Act attracts penalty under Section 271 and prosecution under Section 276C. Penalty will be levied for concealing the particulars of income or for furnishing inaccurate particulars of income and it would be ranging from 100% to 300% of the amount of tax sought to be evaded. Prosecution proceedings can be initiated for a wilful attempt to evade tax, penalty or interest and this may lead to imprisonment ranging from 3 months to 7 years along with fine. Under the IDS, 2016, the penalty will be just 25% of the tax evaded (i.e., 25% of 30%) and the declarant will be deemed to be immune from all prosecution proceedings under the Income-tax Act and Wealth-tax Act.

20. Particulars Sec.271(1) (c) IDS, 2016 Basic tax rate 30% (assuming a company) 30% Surcharge 7% 25% of 30% Education Cess 3% - Penalty 100-300% 25% of 30% Prosecution Yes but compondable Immunity granted

21. Particulars Sec 271(1) (c) IDS, 2016 Tax evaded Income 10,00,000 10,00,000 Basic tax rate 30% = 3,00,000 30% = 3,00,000 Surcharge 7% = 21,000 25% of 30% = 75,000 Education cess 3% = 9,630 - Total tax payable 3,30,630 3,75,000 Penalty 100% = 3,30,630 300% = 9,91,890 25% of 30% = 75,000 Total tax liability Min = 6,61,260 Max. = 13,22, 520 4,50,000

22. Declaration under IDS 2016 v. Section 270A   The Finance Act, 2016 has proposed to rationalize the existing penalty provisions so as to bring objectivity, certainty and clarity to the provisions. Accordingly, it is proposed that with effect from 1st April, 2017 penalty shall be levied under the newly inserted Section 270A . It provides for levy of penalty in cases of under reporting and misreporting of income. The proposed Section 270A seeks to provide that the tax officer may levy penalty if a person has under reported his income, cases, where income assessed is greater than the income determined under Section 143(1); or where income assessed is greater than the maximum amount not chargeable to tax, if no return of income has been furnished; or where income reassessed is greater than the income assessed or reassessed immediately before such re-assessment; etc.  

23. Particulars Sec 270 A IDS, 2016 Basic rate 30% 30% Surcharge 7% 25% of 30% Education cess 3% - Penalty 50% -200% 25% of 30% Prosecution Yes/ no Immunity

24. Particulars Sec. 270 A IDS, 2016 Under reported income 10,00,000 10,00,000 Basic rate 30% = 3,00,000 30% = 3,00,000 Surcharge 7% = 21,000 25% of 30% = 75,000 Education cess 3% = 9,630 - Total 3,30,630 3,75,000 Penalty 50% = 1,65,315 200% = 6,61,260 25% of 30% = 75,000 Total liability Min = 4,95,945 Maxi = 9,91,890 4,50,000

25.  One should also ensure that the declaration of undisclosed income should not form part of any proceedings pending under the following categories: Notices under Section 142(1) or 143(2) or 148 or 153A or 153C were received;   Search or survey was conducted and the time-limit for issuance of notice was not expired;   Information regarding such income was received from foreign countries; Cases covered under the Black Money Act; or Persons notified under Special Court Act; or   Cases covered under IPC, the Narcotic Drugs and Psychotropic Substances Act, the Unlawful Activities (Prevention) Act, the Prevention of Corruption  Act. No immunity is provided from FEMA, under IDS, 2016. In the biggest ever black money disclosure, at least Rs 65,250 crore of undisclosed assets were declared in the one-time compliance window, yielding Rs 29,362 crore in taxes to the government.

26. DEMONITISATION Undisclosed income = Rs, 50,00,000 Tax 30% = 15,00,000 Penalty 10% = 5,00,000 Cess 33% of 30% = 4,95,000 Total tax = 24, 95,000 Amount saved = 25,05,000

27. Double Tax Avoidance Agreement (DTAA) India has Double Taxation Avoidance Agreement (DTAA) with 88 countries, but presently 85 has been in force. The DTAA treaty has been signed in order to avoid double taxation on the same declared asset in two different countries. Renegotiating DTAAs to introduce financial information exchange and improve transparency - 65 Countries

28. Tax Information Exchange Agreements To curb black money, India has signed TIEA with 13 countries - Gibraltar , Bahamas,  Bermuda , the  British Virgin Islands , the  Isle of Man , the  Cayman Islands ,  Jersey , Liberia, Monaco,  Macau , Argentina,  Guernsey  and Bahrain - where money is believed to have been stashed away. Panama

29. India joins the Multilateral Competent Authority Agreement (MCAA) on Automatic Exchange of Information (AEOI)  India joined the Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information on 3rd June, 2015, in Paris, France, along with Australia, Canada, Costa Rica, Indonesia and New Zealand. On our behalf, the Declaration to comply with the provisions of the MCAA was signed by H.E. Mr. Mohan Kumar, Ambassador of the Republic of India to France, in a signing ceremony held in Paris.  Ninety-four countries have committed to exchange information on an automatic basis from 2017 onwards as per the new global standards on automatic exchange of information, known as Common Reporting Standards (CRS) on Automatic Exchange of Information (AEOI).  - 109 members

30. India DTAA TIEA MCAA