- 27 Jul 2022
- 5 min read
For Prelims: Bank of International Settlements, Government’s Initiatives
For Mains: Effects of Black Money on Economy, India’s status of Undisclosed Income, Related Government’s initiatives
Why in News?
Recently, the Finance Minister of India has reported that undisclosed income in unreported foreign accounts of more than Rs 8,468 crore has been brought to tax and penalty of over Rs 1,294 crore has been levied.
What do we know about the Undisclosed Income?
- About:
- It is the income which the assessee has not shown in his Income Tax Return and thereby not paid income tax on it.
- It may include:
- any money, bullion, jewellery or other valuable article or thing or any income based on any entry in the books of account or other documents or transactions, which has not been or would not have been disclosed for the purposes of Income Tax.
- Finance Minister’s Report:
- Assessments have been completed for 368 cases, raising tax demand of Rs 14,820 crore under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.
- 648 disclosures involving undisclosed foreign assets worth Rs 4,164 crore were made in the one-time three months compliance window, which closed on 30th September 2015, under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.
- Amount collected by way of tax and penalty in such cases was about Rs 2,476 crore.
- ‘Locational banking statistics’ of the Bank for International Settlements (BIS) showed a fall of 8.3% during 2021 in deposits by Indian individuals in Swiss banks.
What is Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015?
- It penalises the concealment of foreign income and provides for criminal liability for attempting to evade tax in relation to foreign income.
- The Act gave a one-time opportunity to Indian residents to declare undisclosed foreign income and assets.
- The concerned person had to pay tax at the rate of 30% and an equal amount by way of penalty if found having undisclosed overseas wealth.
- However, in case of non-declaration, the provisions included slapping of tax at the rate of 30% along with a penalty equal to three times the amount of tax evaded or 90% of the undisclosed income or the value of the asset.
- The Act provides for punishment of jail for 3-10 years for the willful evasion.
What are the Government's steps for Undisclosed Income?
- Demonetisation
- The Fugitive Economic Offenders Act, 2018
- Prevention of Money Laundering Act, 2002
- The Benami Transactions (Prohibition) Amendment Act, 2016
Way Forward
- Incentivising Bank Transactions:
- To curb the menace of black money, industry body Federation of Indian Chambers of Commerce and Industry has suggested incentivisation of transactions through banking channels and a suitable framework for taxation of agricultural income.
- Electoral Reforms:
- Appropriate reforms are needed to reduce money power in elections, since elections are one of the biggest channels to utilize the black money.
- Training Personnel:
- Both domestic and international training to personnel for effective action pertaining to the concerned area can also help.
UPSC Civil Services Examination, Previous Year Questions (PYQs)
Q. Discuss how emerging technologies and globalisation contribute to money laundering. Elaborate measures to tackle the problem of money laundering both at national and international levels. (2021)
Q. India’s proximity to the two of the world’s biggest illicit opium-growing states has enhanced her internal security concerns. Explain the linkages between drug trafficking and other illicit activities such as gunrunning, money laundering and human trafficking. What counter-measures should be taken to prevent the same? (2018)
As an expert in the field of government policies, interventions, and financial regulations, I've closely followed and analyzed developments related to undisclosed income, money laundering, and associated government initiatives. My knowledge is not just theoretical but grounded in a deep understanding of the practical applications and implications of these policies. Let me demonstrate my expertise by dissecting the concepts used in the provided article.
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Undisclosed Income: Undisclosed income refers to the earnings that individuals or entities have not declared in their Income Tax Returns, thereby evading taxation. This includes money, assets, or income that has not been disclosed for tax purposes. The Finance Minister's report highlights the government's efforts to bring such undisclosed foreign income to light.
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Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015: This act is a crucial legal framework designed to penalize the concealment of foreign income. It imposes criminal liability for attempting to evade tax related to foreign income. The act provided a one-time opportunity for Indian residents to declare undisclosed foreign income and assets, subject to a tax rate of 30% along with an equal penalty. Non-declaration invoked harsher provisions, including higher penalties and the possibility of imprisonment.
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Government's Steps for Undisclosed Income:
- Demonetisation: The government undertook the demonetization drive to curb black money by invalidating high-denomination currency notes.
- Fugitive Economic Offenders Act, 2018: This act targets individuals who flee the country to evade legal action, especially those involved in financial offenses.
- Prevention of Money Laundering Act, 2002: Focuses on preventing money laundering and the financing of terrorism.
- Benami Transactions (Prohibition) Amendment Act, 2016: Addresses transactions where the property is held by one person but the consideration for it is provided by another, aiming to curb the use of proxies for holding undisclosed assets.
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Incentivising Bank Transactions: The suggestion from the Federation of Indian Chambers of Commerce and Industry to incentivize transactions through banking channels is aimed at promoting transparency and discouraging cash transactions that often facilitate the generation of black money.
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Electoral Reforms: Recognizing the role of elections as a channel for utilizing black money, the article proposes electoral reforms to reduce the influence of money in politics.
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Training Personnel: The need for domestic and international training for personnel highlights the importance of building expertise to effectively tackle issues related to undisclosed income and money laundering.
This comprehensive approach involving legal frameworks, government actions, and industry suggestions reflects a multifaceted strategy to address the challenges posed by undisclosed income and black money in India. The measures outlined in the article aim to not only uncover hidden wealth but also to prevent the generation and circulation of black money through various channels, including electoral processes and financial transactions.
