NEW DELHI: The Reserve Bank of India today said no action under FEMA will be…
New Delhi,Shrimi Choudhary: The NDA government’s valiant efforts to unearth black money have ended in a whimper. The three-month long black money compliance window that closed on Wednesday (September 30) evoked lukewarm response with only less than Rs 2,000 crore of undeclared income having reported by the I-T department, as against several thousands of crore rupees expected through it.
Referring to one of the biggest political issue before storming to power 16 months ago, prime minister Narendra Modi in his second Independence Day speech on August 15 had said Rs 6,500 crore of undisclosed income had already come through the compliance window, then. The window had started on July 1, and by August 15, it was only half way through.
The prime minister had said in his address on the I-Day: “We have given some grace period for declaring undisclosed income and today I can say that people have come forward and declared their undisclosed income amounting to Rs 6,500 crore. This amount will accrue to our exchequer.”
Interestingly. this statement is missing from the speech uploaded on the PM’s official website.
The one-time black money compliance window is not likely to be extended, said tax authorities.
The last time it was in 1998, when the government came out with an amnesty scheme. It made the exchequer richer by Rs 10,000 crore. It had targeted both domestic as well as overseas black money generators.
However, the NDA government on its part clarified that the compliance scheme is not the same as the amnesty scheme – also know as Voluntary Disclosure of Income Scheme (VDIS) launched 17 years ago. The scheme was floated after the government gave an undertaking to the Supreme Court that the VDIS was the last of its kind, and it would not bring about such schemes in future.
As against the earlier amnesty scheme, the new compliance window was provided for a 90-day period to foreign asset holders to declare their undisclosed assets. Under the scheme, they had to pay a total of 60% tax, which includes 30% penalty. The tax and penalty on the income declared under the window has to be paid by December 31.
If the total income declared is Rs 2,000 crore, the government will earn a maximum of Rs 1,200 crore (at the rate of 60% in tax and penalty).
Sources familiar with the compliance window scheme said, “This time around, the high penalty, which amounted to a total of 60%, deterred many people. In addition, the fear of further scrutiny by the tax authorities stopped many from coming clean.”
Rahul Garg, partner of PwC, told dna, “High penalties and the lack of assurances on further scrutiny are the prime reasons for the sub optimal response to the scheme.”
According to income-tax sources, most of the tax disclosure has come from first time and small time evaders, while ‘big fish’ are still elusive.
“The big companies have escaped the hawkish eyes of the government by shutting down their overseas operations hitherto used to divert funds abroad. The route adopted is not new, as corporates have been floating subsidiaries through export- import remittances receipts,” said sources.
“The government’s assurance, that information would be kept confidential in terms of Section 138 of the I-T Act, are not satisfactory and hardly make a difference among people, were the reasons for poor response, despite government’s efforts to address them,” said a tax expert on the condition of anonymity.
The finance ministry had issued two separate sets of Frequently Asked Questions (FAQs) on the compliance window till now and organised couple of workshop too to overcome people concerns.
To avoid confusion, the CBDT, in a clarification, said just two days before the compliance window ended on September 30 that all those declaring overseas wealth would not face any penalty or prosecution under Foreign Exchange Management Act (FEMA) and four other laws – Income-Tax Act, Wealth Tax Act, Companies Act and Customs Act.
“The timing of such clarification on trials under different laws is not appropriate, as its comes two days before deadline,” said a Mumbai- based chartered accountant.
He further added, “The major setback of the law is that there is no provision to compel the declarant to repatriate funds in foreign exchange. There should have been a requirement that all tax and penalty must be compulsorily remitted to India in convertible foreign exchange through the approved banking channel. In the absence of any such requirement, there would be a propensity to pay tax and penalty only in rupee. It is not clear whether the I-T department would question the source of payment of tax and penalty. If it does, another Pandora’s box may be opened.”
Now after the compliance window has ended, those who are having undisclosed overseas assets will have to pay tax and penalty of 120% and face jail term which can extend up to 10 years under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.