In India, black money refers to funds earned on the black market, on which taxes have not been paid. In February, 2012, director of CBI said that Indians have US $ 500 bn of illegal funds in foreign tax havens. To curb this black money government had tighten is belt and shown its commitment to tackle this menace by several initiative/measures which are discussed briefly in following sections.

(A) S.I.T. (Special Investigation Team) in May 2014 headed by M.B.

Shah called for:

• Complete ban on cash transaction over 3 lakh to curtail black money and limit of Rs. 15 lakh on cash holding. It suggested, that if industry is required to hold more cash, then permission of commissioners of Income Tax is needed.
• Panel has asked RBI (Reserve Bank of India) to develop an institutional mechanism, with revenue department to share export-import & forex transaction information with investigative agencies to curb illicit financila flow out of country.
• Mandatory quoting PAN Card identification for transaction above Rs. 2 lakh from Jan 1, 2016.

(B) Income Declaration scheme-2016

It was a major step taken by government to unearth black money from domestic market. IDS 2016 was kept open from 1st June 2016 to 30th September 2016 for four months.

• It provided opportunity to person who had not paid full taxes to come & declare their undisclosed income and assets.
• Under I.D.S., 64275 declarations were filed with an aggregate of Rs. 65,250 crore worth of until undeclared income which is likely to rise further.

(C) Undisclosed Foreign Income and assets and Imposition of Tax Act, 2015

It to unearth black money stashed outside the country. The act came into force from 1st July 2015.

• It provided for one time compliance window to declare assets held abroad and pay due taxes and penalty on value of these assets.
• The amount involved in these 644 declaration was 4,164 crores. The amount received by way of tax & penalty upto 31st December 2015 is 2,428.4 crore.

(D) International Treaties

The information pacts with other countries will make it difficult to stash black money in overseas accounts.

For example:

• Indo US Foreign Account Tax Compliance Act (FATCA) to ensure that tax is paid on income generated from wealth abroad.
• Initiative for signing Automatic Exchange of Information Treaty with all major countries including Switzerland.
• All this has helped government to file 164 prosecutions cases of the 175 cases of black money started overseas in HSBC's bank account worth Rs. 8000 crore.
• Detection of Rs. 5000 crore of undisclosed deposits in foreign account by International consortium of Investigative Journalist (ICIJ).
• Similarly investigation in the Panama Papers has led to 250 references being made to other countries asking for details about tax evaders, bank accounts etc.

(E) Revising DTAA's (Double Taxation Avoidance Agreement)

Tax evaders have often exploited Loopholes in existing tax treaties with low or zero tax jurisdictions like Mauritius, Singapore, and Cyprus ensuring complete tax avoidance. Therefore, government is on spree to revise the DTAA's.

For Example:

• India & Mauritius amended DTAA in May 2016, which allowed India to levy capital gains tax from sale of shares of an Indian company from April 1, 2017 onwards.
• The Singapore treaty amendment are being negotiated and will be automatically being amended from April 1, 2017, as it is under same protocol as Mauritius.
• India has Double Tax Avoidance Agreements with 82 nations, including all popular tax haven countries.

(F) Non-Intrusive Target Evaders

• The upgradation of IT capabilities has led to non-intrusive methods of detection of tax evasion. According to Ministry of Finance, Rs. 16000 crore, have been collected by using this method.
• ‘Project Insight’ will allow government to collate all information available with Income Tax Department from various sources and profile it systematically for people using PAN (Permanent Account Number) details.

(G) Benani Transaction Act: Investment in property or real estate is used commonly to park unaccounted money, and therefore Parliament has approved Benani Transaction (Prohibition) Amendment Act in August 2016.

• It widened the definition of Benami transaction to include a transaction made in a fictions name; where owner is not aware of or denies the knowledge of the ownership of property.
• Also the penalty provision have been made stricter: i.e. penalty under amended act will be rigrous imprisonment of 1 year – 7 years and fine to 25%.
• For providing wrong information, rigorous imprisonment of 6 months – 5 years and fine upto 10%.

Conclusion/Way Forward

With all major economics of world uniting against the cause of eradicating black money, seen from base erosion and profit sharing (BEPS) agreement and multilateral information exchange pacts it will become difficult to carry out tax evasion. Nevertheless the steps taken by Indian government like use of technology such as project insight, making much of income tax filling online, reducing tax terrorism, bringing GST etc. can help unearth & stop black money. But now the focus should move on discouraging cash transaction and encourage card payments in economy to curb black money circulation.

POSSIBLE QUESTION FROM EXAM POINT OF VIEW

India's black economy or shadow economy is humungous & complex leading to underdevelopment in economy. Critically comment on recent black money laws and initiatives taken by government to curb this menace. (200 words)