Will Modi government be able to bring Black money back to India ??

Will India get independence from Black money ?? This has been the most debatable topic since last election campaign in India. The question has always been in spotlight and opposition political parties keep on throwing tantrums on elected government on the promises made by Modi Government. Masses keep on debating whether it was an election gimmick or it really is a practical promise by e. We went to deep dive the matter to examine the practicality of Indian government claims of bringing black money back to India. What is Black Money, this is a money which has been illegally obtained or the money which has not been declared for tax purposes. Black money is tax-evaded income. It can be earned both through legal and illegal means. Its legitimate source is that the income-earners do not reveal their whole income for tax purposes. Apart from the activities like terror, drug abuse and smuggling, the menace is deep rooted and sources of black money includes, government doctors earning money by private practice even when they get non-practising allowance; teachers earning money through tuitions, examinations and book royalty and not including it in income-tax returns; professionals charging much higher fee than shown in their account books, and so forth. Its illegitimate source is bribe, smuggling, black-marketing, selling commodities at prices higher than the controlled prices, taking pugree for house, shop, etc., selling house at a high premium price but showing it at much lower price in the account books, and so on. Let’s start from the black money menace magnitude in India from last decade. Black money is like a liquid, the property of liquid is, wherever it will find the way, it will go there, and change it’s shape accordingly. Prior to 2002, this was an Era of Benami transactions. Leave apart money which ahs went to overseas from India, In India itself we were facing the issue at a very high magnitude. With the terror growing across the world and incidents like twin tower, forced world economies to ensure that the black money isn’t able to find any destination for parking. Pursuant to the incidents, US made Know Your Customer (KYC) mandatory for all US banks under USA Patriot Act of 2001. Any country who wanted to trade with US was required to comply to KYC norms. The whole world along with India gave the nod to fight with terrorism collectively and implemented KYC norms. In India, the introduction of KYC and AML norms, Know your customer processes are employed by companies of all sizes for the purpose of ensuring their proposed agents, consultants or distributors anti-bribery compliance. Banks, insurers and export credit agencies are required to demand from customers detailed anti-corruption due diligence information, to verify their probity and integrity. In summary, one needs to declare his identity in order to do any financial transaction such as opening of bank account, subscription to insurance schemes, etc. Additionally on the top of it, starting April 1, 2005, to fight the menace, government came up with clauses in Income tax Act vide Section 285A to further get the details of high value transactions under reportable tax net. Among other rules, any property registry valuing more than Rs 30 lacs required reporting by Registrar to the tax authorities. With these steps and KYC norms, now it was getting difficult for black money to find it’s way to Indian banking system. But the liquid was still finding it’s way to physical gold. Past decade, witnessed increase in number of locker facility provided by bankers manifold which is a clear indication of rising physical gold reserves among general masses. To get a hold on these issues, government has recently came up with gold deposit scheme wherein physical gold will get back to government by incentivising the depositor. This will bring in this money back to economy. Further to arrest cash involvement in real estate transaction, effective May 2015, any sort of cash transaction in property sale purchase is being taxed heavily. RBI is using soft but effective techniques to get hold of subject. In last 2-3 years, RBI announced that currency notes prior to defined year needs to be deposited back to RBI and such notes would not be allowed as currency note after specified period. Steps like these made paved money to unearth money from currency note hoarders. Last 5 years, Indian taxation system upgraded in technology, and income tax department has gone fully online. Tax department is deriving intelligence from data to trace the defaulters. Recent use of spy and recce techniques by Delhi VAT department to unearth tax theft proves the paradigm shift in the working process of Indian tax authorities. It will not be wrong to say, that within India the tax bracket is spreading it’s arms which is making life difficult for black money. Thus, it would not be wrong to say that within India we are in right direction for eradicating black money. But, most neglected and urgent pressing area, do we have any hold of black money which is finding it’s way outside India. In May 2015, the Black Money Act received accent of President of India. The stated purpose of the Act is to deal with the menace of black money and it among other things it seeks to, levy tax on the undisclosed assets and income held abroad by Indian residents and Indian-sourced income of non-residents invested in assets abroad. First time in India, the law has been made strict and clear for tax evaders. The Act imposes a penalty of 300% along with tax and interest due on the undisclosed foreign assets and income. It also call for 100 percent penalty if the demand raised is not paid within the stipulated time and an imprisonment of anywhere between 6 months to 10 years. The basis of charge further strengthens the act to get hold of old transactions. The Section 3 of the Act specifies that an undisclosed asset located outside India shall be charged to tax on its value in the previous year in which such asset comes to the notice of the Assessing Office. India and US signed Foreign Account Tax Compliance Act (FATCA) on July 9, 2015. FATCA was enacted by the US in 2010 as part of the Hiring Incentives to Restore Employment (HIRE) Act to combat tax evasion by US nationals holding investments in offshore accounts. The law seeks to facilitate flow of financial information between countries. Under the inter-governmental agreement, Indian government will have to reveal information about US tax payers to the US tax authorities. The US revenue authorities will in turn provide similar information about Indian account holders in the United States. This automatic exchange of information is scheduled to begin on September 30, 2015. The signing of intergovernmental agreement (IGA) a reaffirmation of the shared commitment of India and USA towards tax transparency and the fight against offshore tax evasion and avoidance. The agreement underscores growing international cooperation to end tax evasion everywhere. The US has IGAs with more than 110 jurisdictions and is engaged in related discussions with many other jurisdictions. FATCA further lends a hand in India fight against black money. The country has stepped up efforts to tackle the menace by putting in place a new law. It has already inked a multilateral agreement on automatic information exchange and will start receiving information from 2017 onwards. World is increasingly moving towards automatic transmission of information (AEOI) with regard to illegal money held up and a situation would arise by 2017 that India will be able to get information in real time from foreign countries including Switzerland. 58 countries (including India) have already committed to share information under AEOI based on common reporting standards by 2017. A further 36 jurisdictions have committed to share by 2018, including jurisdictions which have beneficial tax regime. This would be instrumental in getting information about assets of Indians held abroad including through entities in which Indians are beneficial owners. This will help the Government to curb tax evasion and deal with the problem of black money. This is turn means, Indian tax authorities now or will have a robust IT system in place wherein all the susceptible transactions are consoled globally. This information is not only prospective, but under various treaties, government will have access to historical data too. The Black Money Act, as mentioned earlier can tax the undisclosed income in the year, the tax authority comes to know of tax evasion. We believe the foundation laid out is robust, and India will definitely witness come back of Black money.