War on black money: Modi government turns to Indian banks

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War on black money: Modi government turns to Indian banks

The government of Prime Minister Narendra Modi, who reiterated his pledge to battle black money on Sunday, is roping in banks to spearhead the bid to unearth wealth that's been salted away behind the facade of trusts, special purpose vehicles and other complex corporate structures often used to evade taxes.

Banks will be asked to pierce the veil to ascertain the actual owners of such accounts, according to a new set of rules being framed by the Central Board of Direct Taxes. "The rules are under preparation... These should be made public in a month," said a finance ministry official aware of the move. The new regime will take effect from the next financial year.

The details thus obtained will also help India exchange information under the US Foreign Account Tax Compliance Act (FATCA), besides a new global protocol from September 2015.

Even the Special Investigation Team on black money, set up by the government at the direction of the SC, has identified tackling tax evasion effectively as one of its key focus areas.

The rules are part of the groundwork being put in place by India to deal with a new world order in which banking secrecy rules can't be used to conceal wrongdoing and also to strengthen the hands of domestic tax authorities in line with the new government's focus.

Black money has been a priority for the government from the start, with SIT being set up on its first day in office. Arun Jaitley last week urged tax officials to pursue domestic tax evaders. Prime Minister said on Sunday in a radio address that recovery of black money from abroad was an article of faith and a commitment.

New Delhi has been at the forefront of the international effort for meaningful exchange of information and is among the first few that will begin sharing bank data on an automatic basis from September 2017.

India may have skipped signing the key OECD protocol last week on this but is hopeful of doing so once it gets clarity from the apex court on confidentiality of data under such treaties and is therefore preparing the groundwork for this.

The hiccup has come as the SC last week demanded a list of names that India had obtained from governments overseas. The apex court has to decide whether such disclosures are permissible despite the secrecy clauses attached to global and bilateral treaties. The government's position is that names should only be revealed if there is enough evidence to justify prosecution. It is under deadline pressure on FATCA, which needs to be signed by December 31.

The automatic information exchange framework will strengthen the country's tax authorities in their fight against evasion as it entails flow of data on bank accounts, interest income, royalties and dividend besides account balances.

This implies that after 2018, India will be able to get data on its citizens from Mauritius and tax havens such as the British Virgin Islands, the Cayman Islands and others. India and some other countries will start automatic information exchange in 2017 but all others will have to do so by 2018.

The government had in this year's budget amended Section 285 BA of the I-T Act — that deals with the filing of annual information return — to give it more teeth. Under the provision, transactions above a certain limit need to be reported by entities dealing with them. These include a Rs 10 lakh deposit or withdrawal in a savings bank account, Rs 2 lakh credit card spending in a year, Rs 2 lakh investment in a mutual fund, Rs 5 lakh in bonds and fixed deposits, Rs 1 lakh in stocks and Rs 30 lakh in real estate.

The provision empowered CBDT to frame rules and notify the entities and types of financial transactions that will need to be reported and in what format.

"With a view to facilitate effective exchange of information in respect of residents and non-residents, it is proposed to amend the said section so as to also provide for furnishing of statement by a prescribed reporting financial institution in respect of a specified financial transaction or reportable account to the prescribed income-tax authority," the memorandum to the Finance Bill said.
War on black money: Modi government turns to Indian banks - The Economic Times

it appears that the Govt is serious about unearthing balck money and IT evaders.

However, it will also increase transaction in cash and hawala transactions.

In what manner can the Govt ensure that such activities too can be monitored?

Or is it a losing battle against the big fishes?