The New Black Money Law: A mis-step in the right direction
Government efforts at preventing tax evasion and generation of black money go as far back as Indian independence. In fact, according to a government White Paper on Black Money,investigations into tax evasion and recommendations go even further back to 1936. Having said that, the latest legislation to tax unaccounted wealth stashed abroad is laudable and definitely a step in the right direction. This will not only help tax the income, which escaped assessment earlier, but also be a strong deterrent to accumulating unaccounted wealth abroad.
Yet, the methods of implementation leave much to be desired and have created a furore amongst tax payers. As a case in point, the aspect on Limitation appears to be quite draconian. Let me elaborate. The Act imposes no limit as regards limitation, and if a person does disclose holdings, then these can go back up to 20 to 40 or even 50 years. This black money law is very harsh as compared to the law related to undisclosed assets within the country. As per the limitation clause under section 148 of Income Tax Act (reopening of assessment), the Income Tax Department cannot go beyond 1st April, 2008 for any income/ asset disclosed or detected in the current financial year. If a person acquired an asset in India from undisclosed income before 1st April 2008, the IT department cannot initiate any proceedings against the person more than 6 years from the end of the assessment year to which it pertains. Even if the department takes a stringent action and conducts a search, and discovers an undisclosed asset, that person is not liable to pay any tax whatsoever and it will lead to no tax recovery, whereas the taxation of undisclosed foreign assets under the Black Money Law can go far beyond 6 years in assessment.
Under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, if a person an undisclosed foreign, he will have to pay 30% tax plus 30% penalty if her declares it by till 30 September 2015, and if not declared till 30 September 2015 he will have to pay 120% of the total value of the asset.
Limitation is one of the canons of the justice system across the world. All civil and fiscal laws invariably have a limitation clause which this Act does not adhere to.
The fact is that India still ranks a low 154 out of 189 economies on this year’s ease of paying taxes rankings. To make a strong, efficient and effective tax regime, each step along the way will have to be carefully thought through. Let us hope the government can bring some relief to tax payers on the limitation front.
Rahul Kapoor ,Chartered Accountant
Managing Partner –RKACA & Associates LLP