Tax avoidance and tax evasion have become our national habits with honorable exceptions. Recently published official statistical data of income tax returns filed is testimony to this. Out of over 120 crore Indians, only 4% file tax returns, of this 1% pay tax. In Goa about 50,000 tax returns are filed in a population of 12 lakh.
Tax evasion is blatantly done by traders, stall-owners, hoteliers, self- employed persons, professionals either by suppressing or not accounting sales or professional receipts or inflating expenses. Huge money received from bribes, corruption, smuggling and other illicit activities also escapes tax as all these transactions are in cash and illegal.
Tax is also avoided dubiously in a legal manner by taking advantage of loopholes in tax laws through various exemption claims or splitting income between various tax entities. Eg a rich family of just few members will have multiple tax entities artificially created by formation of LLPs, Private limited companies, Trusts, AOPs, BOIs etc. Funds also get syphoned through creation of various types of Trusts- Charitable, Non-charitable, Religious, Family, Testamentary and even Trusts for children yet to be born. Bogus registered political parties are also used for laundering of black money. There are 1,866 registered political parties in India.
The black money thus generated is hidden in underpriced real estates, jewellery, unaccounted stocks, foreign assets, luxury goods or spent in lavish lifestyle which does not get into tax net.
Ingenuity and expertise of Indians to dodge tax authorities and corrupt officials is legendary and difficult to fathom. They have made mockery of revolutionary demonetisation scheme introduced with great expectation to curb black money, corruption and fake notes.
All attempts including voluntary declaration schemes made by earlier Governments to curb tax evasion were proved futile and are now looked upon with derision.
Ever since new Government under Narendra Modi as Prime Minister was formed, series of steps are being taken to root out tax evasion and corruption even at the cost of hurting ruling party’s voters, which reflects seriousness in this matter.
At the very first meeting of the Council of Ministers of new government, Special Investigation Team (SIT) under chairmanship of retired Chief Justice of India was appointed to unearth black money.
To detect undisclosed foreign income and assets The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 has been made operative from July 1, 2015. The objective of this Act is to tax undisclosed overseas income and assets. This Act contains stringent provisions to levy tax and penalty on undisclosed assets held abroad by a person who is resident in India @ 120 per cent and rigorous imprisonment of three to ten years. Simultaneously Government has entered into agreements with 33 countries for On Time Exchange of Information of bank account holders of home country. Though response to disclosure of Foreign Assets Scheme was unsatisfactory, it would be very difficult for Indians to bring back these hidden funds to India by round tripping of funds. Further growth of hoarded black money abroad will stop as it will be hard to send black money abroad.
After giving chance to Indians to declare domestic black money under the Income Tax Declaration Scheme, 2016 @ 45% tax, revolutionary demonetisation scheme of high value notes was introduced to curb corruption black money and terror funding. This was planned in advance with massive opening of Jan Dhan Bank Accounts and other logistics to facilitate banking transactions.
In anticipation of fertile mind of Indians to sabotage the scheme through corrupt practices, Prohibition of Benami Transactions (Prohibition) Act, 2016 was enacted. This Act provides for 7 years imprisonment and fine for person who holds any immovable or movable property including bank deposits, financial securities financed by him but held in the name of other parties.
Simultaneously, the Prevention of Money Laundering Act has been enforced to provide for confiscation of property and heavy fine for laundering of illegal money through legal channels.
Along with this, government has made its Data Information Technology Network more robust and strong. Through demonetisation, the government has now established audit trail of funds deposited in various bank accounts and their transfer to third party accounts.
Government has made it mandatory to link every bank account anywhere in India with PAN number. The transaction of investments in de-mat accounts, mutual funds, air travels, hotels are also linked through PAN. Tax is required to deducted at source (TDS) from host of payments like contracts, fees, rent etc linked to PAN. Provisions are also introduced to collect tax at source by sellers in respect of certain transactions above certain amount like jewellery etc where quoting PAN is a must.
This will enable the Income Tax Department to check the transaction history of any individual with a click of a button and trace omissions, evasions and non-reporting of any financial transactions also unusual trend in bank accounts for further investigation with the help of new PAN Monitoring and Analysis software tool of the Income Tax Department.
Provisions are made under the Income Tax Act by putting restrictions on cash transactions to push transactions through banking channels and to reduce tax evasion.
Introduction of Goods and Service Tax (GST) with effect from July 1, 2017 will also curb tax evasion through suppression of supplies of goods and services since they will be linked to the Income Tax Department through PAN.
With these various measures taken by the Government to spread the tax net, it will be very difficult for anyone to dodge the system to avoid or evade tax without the risk of heavy punishment.
Those who have missed the chance to declare black money under earlier declaration schemes, have now one more chance, under Pradhan Mantri Garib Kalyan Yojana, (PMGKY), to declare their unaccounted cash deposits by paying charge of 50% and investing 25% of amount in non-interest bearing PMGK Deposit for four years. This is valid till March 31, 2017.
