Shock Therapy Advised for Tax Evaders

 

Shock Therapy Advised for Tax Evaders

 

Indians with undisclosed foreign assets and offshore bank accounts will be in for a shock this Budget if the finance ministry clears a proposal empowering income tax authorities to reopen assessments up to 16 years as against 6 years now. The proposed amendment, the ministry feels, may not only act as a deterrent, but also put pressure on people to declare their wealth stashed away in Swiss banks and tax havens. In the first estimate by a government official, CBI Director A P Singh recently said an estimated $500 billion (Rs.24.5 lakh crore) belonging to Indians is deposited in tax havens abroad. While a change in law would apply to undeclared assets held overseas and locally, the proposal has been mooted keeping in mind reports of numbered and trust accounts of Indians in other jurisdictions. An amendment could be proposed in the forthcoming Budget if FM Pranab Mukherjee endorses it. Undisclosed earnings will continue to attract a penalty of up to 300% of the tax amount, interest and prosecution even if the tax law is amended to allow reopening of older assessments. Tax professionals, however, think that the proposal is draconian and, if implemented, will cause hardship to taxpayers. "It will cause a lot of difficulty as people usually do not keep records for that long, "said Rahul Garg, direct tax leader - tax & regulatory services, PwC India. But there are individuals who take advantage of the rule, said a senior chartered accountant. The taxmans inability to reopen assessments that are more than 6 years old is used by some to convert black money into white through purchase of single premium policies from insurance firms that accept cash payment. In such transactions, the money that comes back to the policyholder at the end of the term (normally more than 6 years) is official and cannot be questioned by the tax department. Another suggestion includes changing the wealth tax regime to ensure that those amassing wealth pay due taxes. For instance, the wealth tax return format can be changed to include productive as well as unproductive assets, even those held abroad. At present only unproductive assets like unused residential property, farm house, urban land, jewellery, bullion, aircraft and yachts have to be declared in the tax return. For many assesses, a change in the rule could boil down to declaring investments in stocks, debentures, fixed deposits, and bonds in the wealth tax return. Tax experts say a mere reporting requirement will not be enough. Rather than just making reporting mandatory these assets should be brought under the definition of gross wealth with a suitable increase in basic deduction but the focus should be on oversean rather than domestic assets, said Amitabh Singh, partner, Ernst & Young. -

Source - Economic Times