While opposition is targeting PM for not fulfilling his promise, ruling govt. has always maintained that concrete action is being taken to curb this menace.

Demonetization has sparked the debate on black money. While opposition is targeting PM for not fulfilling his promise, ruling coalition has always maintained that concrete action is being taken to curb this menace.

corruption in bureaucracy Black Money Row: Winning The War Or Showing The Weakness

Corruption is a global phenomenon and no politician can guarantee that he will make the society corruption free. Assessment of a leader should be made after taking in view the efforts made in this direction and the willingness to act. As far as black money is concerned, ill gotten money stashed abroad has got the disproportionate attention and money generated from illegal means or untaxed income which is in circulation within the country is hardly discussed. It is important to bring back the money from outside India but at the same time it is equally important to discourage the generation & circulation of black money within country. Without going into the phraseology used by both the sides, let’s see the initiatives taken in past two and half year to draw a conclusion whether it is enough to claim that government is sincere on this issue and taking all the necessary steps-

  1. Constitution of Special Investigation Team (SIT) – In 2011 Supreme Court ordered the government to constitute SIT on black money but it was not implemented till May 2014 when cabinet in its first meeting decided to go ahead with this. Government has implemented various recommendations of SIT and many of the recommendations are under consideration.


  1. Amending Double Taxation Avoidance Agreement (DTAA) with Mauritius, Cyprus and Singapore – Mauritius and Singapore are considered as intermediate destination for round tripping of black money sent abroad. Approximately 50% of FDI since 2000 is routed through these countries only due to the fact that capital gain on investment from these countries was exempted from tax as per DTAA. It is pertinent to note that as per report released by Global Financial Integrity, app. 505 billion USD was taken outside India from 2004 to 2014 and if the way to bring this money back to India is put to check, it will automatically discourage the outflow of money.

pm s korea president  Black Money Row: Winning The War Or Showing The Weakness

Now the government has amended the DTAA with these countries and any gain arising out of investment made in India will be taxable in our country. In order to avoid ambiguity and litigation, these provisions will be applicable prospectively from 2017.


  1. Control over Participatory Notes (PNs) – PNs were considered as a safe route for investing the ill-gotten wealth because the identity of the investor was not known. There were apprehensions that even money generated from illegal activities are routed through this channel and significant amount of round-tripping is taking place. Considering the modus-operandi of PNs, SIT constituted to look into the black money matter recommended for greater disclosure.


SEBI took necessary steps and now share of PNs in overall Foreign Portfolio Investment (FPI) has gone below 10% in November 2016 from as high as ~56% in 2007.


  1. Foreign and domestic Income disclosure scheme – Objective of the taxation laws is to tax the income in the hands of the recipient and considering this aspect, government announced income disclosure schemes as a one-time opportunity to come clean. Government’s share of tax came to app. 32,000 crores from the declarations made under these schemes.


It is important to note that declared asset was to be valued according to recent market price and tax rates were kept higher as compared to normal rate so that honest people doesn’t feel cheated for their honesty. Amenity under IDS was not available in case of criminal offences.


  1. Information exchange agreement with Switzerland – Swiss banks are notorious for their secrecy and this is the reason Switzerland is the best destination for black money holders. India has signed “Auto Information Exchange” agreement with Switzerland which will be effective from September 2019. Swiss authorities will share the financial information on automatic basis from September 2019 onwards.


  1. Raising the issue at global forums – PM raised this matter at various global forums (including G20) and insisted that every country should show full commitment in fight against black money & tax evasion. His emphasis that treaty loopholes should not be the reason behind not ringing the culprit to the book. This move is reciprocated well and as mentioned above, some of the DTAAs have been revised along with entering into agreement with secretive tax jurisdictions like Switzerland.

obama modi india trade deals Black Money Row: Winning The War Or Showing The Weakness

  1. Information sharing agreement with USA (FATCA) – In 2015 India entered into “Inter Government Agreement (IGA)” with USA under which both the countries will share the information. Now Indian authorities can get the details of assets owned by Indians and kept in USA. This will help tax authorities to tax the assets created abroad but for which no proper source is explained.


  1. Global pact for auto information exchange – There is greater demand for transparency to handle the financial crimes and cooperation is required among various tax jurisdictions to understand the various layers of investment, its source and beneficial owner. In 2015 India signed multilateral agreement on auto information exchange which will help getting the information from the other signatory countries and Indian tax authorities can use it for assessment.


  1. Amendment to Benami Property Law and notification of Rules thereunder – Sometime back income tax department published an analysis in which it was concluded that large part of black money is invested in real estate, bullion etc. Large number of immovable assets acquired out of ill-gotten money is invested in benami properties. India passed law related to Benami Property in 1988 itself but rules relating to implementation of the said law were never notified and therefore no action was ever taken under this law. Now government has amended the Act to widen the definitions and included more rigorous penal provisions. For a matter of fact, it is quite surprising that every political party talks about fighting the corruption but an Act which was supposed to take lead in this cleanup exercise was deliberately rendered ineffective for 27 years.

demonetization and banks Black Money Row: Winning The War Or Showing The Weakness

  1. Demonetisation – Lot of discussion has happened over recently announced demonetisation exercise which was aimed to achieve tangible benefits in the form of wiping out black money from the system and intangible benefits in the form of removing counterfeit currency, curbing terror/naxal financing, moving towards less cash society, discouraging hawala route etc. Final numbers from RBI are awaited to draw a curtain over the speculation that how much liability relating to old currency notes will get extinguished. Moreover extinguishment alone is not the only financial gain coming out of demonetisation and now income tax department has more details about the persons who deposited the money and it may be helpful in increasing the tax base as well completing the assessments. Apart from this, department has roped in tax professionals and forensic experts to analyse the data for detecting suspected money laundering cases.


  1. Direct benefit transfer (DBT) – PM launched his ambitious Jan-Dhan Yojna with the twin objective of financial inclusion and plugging the leakage in government sponsored schemes. In 1985 Rajiv Gandhi once said that only 17 Paise reaches the poor out of every rupee sent by Centre and after almost 25 years in 2009 Montek Singh Alhuwalia (then Dy. Chairman, Planning Commission) said that only 16 Paise reach the poor. These two statements are enough to show the extent of corruption and DBT is aimed at stopping this (and thereby stopping the generation of black money itself which was taking place in a syndicated manner). Government has released data relating to saving coming out of DBT scheme which is running into thousands of crores.


  1. Changes in taxation laws – Various provisions of income tax law has been amended to put preventive as well detective checks over generation of black money. Some of the provisions which worth mention are-


  1. TCS on cash purchase – Seller is required to collect tax on cash purchase of more than Rs. 2 lakhs (5 lakhs for jewellery) and income tax department can correlate these details with the return filed by the buyer. Illicit money is used in buying gold, jewellery, high end durables etc. and such move will help in detection.
  2. Bar on cash transaction over 20K in real estate – Harsh penalty has been imposed on cash transaction exceeding Rs. 20,000 used in real estate transactions. It is aimed to ensure more transparency in property business.
  • Excise on gold jewellery – Gold is considered as a safe and preferred investment for those who have illicit money and our import bill has moved southward on yearly basis. Pranab Mukherjee proposed excise duty on gold jewellery in 2012 budget to tackle this issue but it was rolled back after jeweller’s agitation. Excise duty on gold jewellery was again introduced in 2016 and despite of protest from the impacted community, government decided to go ahead with this proposal.

excise duty strike Black Money Row: Winning The War Or Showing The Weakness

Renowned economists, bankers, industrialists and industry associations have hailed the initiatives taken by the government. Opposition takes jibe over PM Modi citing 15 Lakh remark but an honest review of what he said in Kanker rally will clear the doubt that Modi never promised depositing any amount in the individual’s account. Of course he made a promise of bringing back the money and there is no doubt that he is sincere about it. Bringing back the black money stashed abroad is dependent on various factors and some of them like local laws of another jurisdiction is not in the control of our government.

Opposition often sensationalize the black money issue by raising slogans that government is not acting on the list provided any specific individual or agency. However it must be reminded to them that if mere publication of name makes someone guilty then a Swiss magazine named Schweizer Illustrierte published an article in November 1991 alleging Rajiv Gandhi for holding 2.5 billion Swiss francs. A Russia based investigative journalist Yevgenia Albatas alleged that Gandhi family accepted political payoffs from KGB (Russian Intelligence Unit) and therefore grave issues like black money should be discussed with sincerity and honesty across political spectrum. On the other hand government should also realise that we had laws in past also (e.g. Prevention of Money laundering Act, 2002; Income Tax Act, 1961 etc.) but success of the initiatives depends on implementation.


By: Shshank Saurav (Chartered Accountant and Anti Money-Laundering Specialist)


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