Black Money

Recent Developments

In the last four years, the India government has taken a series of steps to check black money generation. Performance of the government of India with respect to fight against black money, can be analyzed as-

Black Money and Imposition of Tax Act

• The government has been able to recover black money of Rs 69,350 crore under the Income Declaration Scheme and Black Money and Imposition of Tax Act. Another Rs 5,000 crore was recovered under the Pradhan Mantri Garib Kalyan Yojana (PMGKY).
• The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act were enacted in 2015 providing a one-time window for declaring undisclosed foreign assets. Around 650 people declared money worth Rs 4,100 crore deposited in foreign banks.
• Two more compliance windows were provided by the government - the Income Declaration Scheme (IDS) and PMGKY in 2016. A total of 64,275 people disclosed Rs 65,250 crore under the IDS to be taxed at 45 %.
• Assets worth Rs 5,000 crore were declared under the PMGKY to be taxed at 50% with the condition of making an additional 25% investment in a government bond for four years. The additional investment was to be refunded without any interest.

Demonetisation

• No concrete outcome was achieved of demonetisation which was announced in November, 2016. Critics consider demonetisation as a failure. About 86% of currency notes - all in Rs 500 and Rs 1,000 denominations - worth Rs 15.44 lakh crore were declared invalid in one go. But, only Rs 16,000 crore returned to banks.
• The Reserve Bank of India (RBI) spent Rs 21,000 crore in carrying out demonetisation and subsequent remonetisation. The final numbers are yet to be officially disclosed by the RBI. It is fair to say on available evidence that demonetisation did not meet the expectations of the government in wiping out black money from Indian economy.

Amendments to Benami Properties Act

• Almost entire Opposition questioned demonetisation. Later stronger Benami Properties law formed as a follow up to demonetisation in the fight against black money.
• The government amended the Benami Transactions (Prohibition) Act of 1988 in 2016. The Income Tax Department set up 24 dedicated Benami Prohibition Units across India.
• According to Minister of State for Finance, on June 30, 2018, provisional attachments have been made in more than 1,600 Benami transactions involving Benami properties valued at over Rs 4,300 crore.

Blocking Mauritian Route

• The government implemented General Anti-Avoidance Rules (GAAR) that came into force on April 1, 2017.
• In May, 2016 India signed the Double Taxation Avoidance Agreement (DTAA) with Mauritius, one of the biggest routes for money laundering and sources of black money generation.
• The government can now tax capital gains from sale or transfer of shares of an Indian company acquired by a Mauritian tax resident. It is considered an effective step to block the Mauritius route of money laundering and black money generation.

Pact with Swiss Banks

• The Indian government signed a pact with the Swiss National Bank in November, 2016. The Swiss National Bank agreed to share account details of Indians with the Indian government from September, 2019.
• So, the next government at the Centre would be receiving details - such as name, account number, address, date of birth, tax identification number, interest, dividend, receipts from insurance policies, the credit balance in accounts and proceeds from sale of financial assets - of Indians stashing their money in Swiss banks.

About Automatic Exchange of Info

• Automatic exchange of information seeks to bring the era of banking secrecy to an end where eventually all financial information will be shared between governments.
• Switzerland is a signatory to the automatic exchange of information agreement under the aegis of the Organization for Economic Co-operation and Development, or OECD.
• However, for the agreement to come into effect, Switzerland has to either sign bilateral agreements with countries or be a signatory to the multilateral agreement.
• These agreements then have to be ratified by the Swiss Parliament. So far, Switzerland has signed such bilateral agreements mainly with European Union member countries.

Bigger Taxpayer Base

• The number of taxpayers has doubled in the last four years. Tax collection has also seen nearly 50% increase during the same period. There were 3.79 crore taxpayers in India in 2013-14. The number increased to 4.07 crore in 2015-16 and 6.84 crores in 2017-18.

Direct Tax Buoyancy Doubles

• Since demonetization, direct tax buoyancy has more than doubled from 0.6 times in FY16 to 1.3 times in FY17 and 1.7 times in FY18. Tax buoyancy is a measure of the responsiveness of tax receipts to economic growth and reflects an increase or decrease in government income.
• The direct tax buoyancy had stayed between 0.5 and 1.1 times from FY08 to FY14. In FY15 and FY16, it was 0.8 times and 0.6 times respectively. But, following demonetization in 2016, the direct tax buoyancy has more than doubled from 0.6 times in FY16 to 1.3 times in FY17 and 1.7 times in FY18.

Operation Clean Money

• Operation Clean Money was launched on 31stJanuary, 2017 for collection, collation and analysis of information on cash transactions, extensive use of information technology and data analytics tools for identification of high risk cases, expeditious e-verification of suspect cases and enforcement actions in appropriate cases, which include searches, surveys, enquiries, assessment of income, levy of taxes, penalties, etc. and filing of prosecution complaints in criminal courts, wherever applicable.