Modi govt manages to push through black money bill
Govt gets black money bill passed, along with Companies Act changes that seek to address corporate concerns
New Delhi: The Bharatiya Janata Party (BJP)-led National Democratic Alliance (NDA) eased provisions in the Companies Act on Wednesday, assuaging one set of concerns of Indian companies, even as it went ahead with a law seeking to curb the generation and transfer of unaccounted money that industry sees as a potential source of harassment.
Government officials have, in recent weeks, hinted that much of the resistance several of the government’s initiatives have faced in recent weeks within Parliament from opposition parties, notably the Congress, and much of the criticism they have faced without, from investors and executives, stem from a fear of the so-called black money law.
That may be the case, but by going ahead with its law against unaccounted money, the government has fulfilled a campaign promise of the BJP and also addressed what many Indians consider the biggest issue facing the country—corruption.
If that displeases industry, worried about harassment (understandable, given recent activism by the tax department), the government has sought to mollify businesses by making the companies law more business-friendly.
The government managed to push through the Black Money (Undisclosed Foreign Income and Assets) Imposition of New Tax bill, 2015 and the amendments to the Companies Act in Parliament on the last day of the budget session. Both these bills will become law after receiving the President’s signature.
The government also approved amending the bill to curb tax evasion within India at a cabinet meeting held on Wednesday. The Benami Transactions (Prohibition) (Amendment) bill 2015 to amend the Benami Transactions (Prohibition) Act 1988 was subsequently introduced in the Lok Sabha.
The bill, which is likely to be referred to the standing committee of finance, provides for confiscation of benami properties (assets held in the name of another person or under a fictitious name to avoid taxation and to conceal ill-gotten wealth).
It provides for a fine of up to 25% of the fair value of the asset and imprisonment of up to 7 years, unlike the earlier lapsed version of the bill, which said that either it will be a fine or imprisonment. The term property will cover movable, immovable, tangible and intangible properties. In case of joint ownership of property, the tax payer will have to show financing sources.
These steps are in line with the government’s promise to curb tax evasion but at the same time provide a business-friendly environment to investors.
Finance minister Arun Jaitley, moving the black money bill for passage in the Rajya Sabha, said the government would provide a compliance window of a couple of months to allow tax evaders to come clean without facing prosecution as per the provisions of the bill.
“If you make a disclosure during this window, you will (have to) pay 30% tax and 30% penalty. Once the compliance window closes, the law becomes further operative and you will have to pay 30% tax and 90% penalty and face prosecution and imprisonment up to 10 years,” he said.
“Indian entities have illegal funds abroad. This could happen only from tax evasion or money earned out of crime like corruption, narcotism and terrorism,” he added.
However, the identity of the persons who disclose their income in the compliance window is not going to be protected like in an amnesty scheme, said Jaitley. He also reiterated that the government has built in adequate safeguards to protect the innocent.
Students and non-resident Indians and professionals working abroad will not be covered under the black money bill. “Only resident tax payers who are liable for assessment under income-tax act and those who spend more than 182 days in India will be under the ambit of the bill,” he said.
The new law will also not cover overseas bank accounts having a balance of ₹ 5 lakh or less.
Once the bill becomes law, non-filing of returns or filing of returns with inadequate disclosure of foreign assets will be liable for prosecution, with rigorous imprisonment of up to seven years, and will also attract a fine of ₹ 10 lakh. Indians will also have to disclose the date of opening foreign bank accounts.
Banks and financial institutions that abet concealment will also be liable for punishment of up to seven years.
The black money bill and the benami bill are indicative of the government’s intention to address the issue of black money holistically, said K.V. Karthik, senior director at Deloitte India.
“With indications that the government is likely to join the Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information and implementation of FATCA, the efforts to identify funds stashed abroad will receive considerable fillip,” he said. “Also, with the finance minister indicating plans to amend the PMLA (Prevention of Money Laundering Act) to include the concealment of foreign income as a predicate offence, and the introduction of a new and more comprehensive Benami Transactions (Prohibition) bill, the challenge on domestic black money should also be hopefully addressed soon,” he added.
FATCA is short for Foreign Account Tax Compliance Act of the US.
“The Benami Transactions (Prohibition) bill would act as an impetus specifically in tracing benami assets in case of corporate borrowers siphoning funds and defrauding the banking system,” said Vikram Babbar, director, fraud investigation and dispute services, EY India.
The companies law amendment bill seeks to address stakeholder concerns, help improve ease of doing business and bring amendments to related-party transactions, as demanded by the industry.
The amendments will align the Companies Act‘s requirements on related party transactions with the Securities and Exchange Board of India and will benefit listed companies, said Yogesh Sharma, a partner at Grant Thornton India Llp.
“The amendment also includes replacing the requirement for special resolution with only an ordinary resolution for approval of related party transactions by non-related shareholders. The Companies Act will now exempt related-party transactions between holding companies and wholly-owned subsidiaries from the requirement of approval of non-related shareholders,” he said.
The amendments also provides for prescribing a threshold limit for reporting of fraud by auditors to the central government. This is expected to reduce compliance costs for companies and reduce the responsibility of auditors.
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First Published:14 May 2015, 08:40 AM IST
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