Brainstorming underway at highest echelons of India’s tax admin to determine methods to cope with ‘retrospective’ character of black cash regulation

Prior to now few years, tons of of writ petitions have been filed in a number of excessive courts of the nation, difficult the sweeping energy of the Black Cash (Undisclosed Overseas Revenue and Belongings) and Imposition of Tax Act (BMA) that empowers the taxman to go after overseas financial institution accounts and belongings which had been opened or acquired years in the past however found solely just lately by the I-T division.

The petitions earlier than the court docket have questioned whether or not a regulation — that might put the offender behind bars for 7 years — can be utilized to punish somebody for an offence that was dedicated when the particular regulation didn’t exist. Such a safeguard allowed underneath the Structure has put the highly effective BMA in a limbo, with a few of the courts granting keep, the tax workplace unable to get well cash in lots of instances, and several other assessments coming to a halt.

“There’s a feeling that this example ought to be addressed. Discussions are on and a few of the exterior tax consultants and former ITAT members have been requested to share their views. The CBDT and the federal government need to be well-prepared in dealing with the authorized points,” a senior particular person within the tax administration informed ET. (ITAT or I-T Appellate Tribunal is a quasi-judicial physique and CBDT, or the Central Board of Direct Taxes is an arm of the finance ministry.)

Sources mentioned just a few have been sounded out for a attainable committee which, if constituted after the final elections, would study the retrospective ingredient of the regulation.

The regulation owes its origin to the Modi authorities’s political promise to unearth and tax black cash hidden in tax havens internationally. Below the circumstances, the federal government is eager to keep away from any future judicial setback from the Supreme Court docket in implementing the regulation.“The federal government needs the Act to cross judicial scrutiny and on the identical time doesn’t need the regulation to lose its enamel. However there’s a rising sense that the questions on `retrospectivity’ should be tackled,” mentioned one other particular person.A recurrent theme in a few of the ongoing disputes is whether or not a resident taxpayer who had closed his checking account or liquidated abroad belongings lengthy earlier than 2015, will be booked underneath BMA.

“However it isn’t a black and white matter. What if the offshore belongings created way back are linked to a gift investigation? As an example, such a property or checking account could have been bought off or closed earlier than 2015, however there are paper trails that present that cash was subsequently put in different belongings or in investments like cryptos. For such instances, the retrospective use of the regulation will be helpful for tax investigators and prosecutors, however on the identical time it ought to run into obstacles within the courts,” he mentioned.

Not solely do assesses need to fork out 120% (30% tax and 90% penalty) of the undisclosed cash in overseas financial institution accounts, they are often hauled up underneath the BMA for failure to pay taxes in addition to for failing to report the belongings within the annual earnings tax returns. Since 2012, taxpayers should disclose whether or not they personal overseas accounts and properties, and are beneficiaries or settlors in abroad trusts.

Quickly after BMA was enacted in 2015, a three-month quasi-amnesty window was given to taxpayers to return clear by disclosing their overseas belongings and paying 60% (30% tax and 30% penalty) on it. However not too many availed the chance, harbouring the impression that the state would by no means get a whiff of their secret wealth. Nonetheless, that mindset has dramatically modified with the Indian tax authorities inundated with info from overseas jurisdictions which had signed information-sharing agreements.

“One hopes a realistic view is taken and the federal government considers introducing a disclosure scheme which is extra inclusive than the scheme of 2015 when many prepared taxpayers had been debarred from making disclosures. Prosecution complaints lead to funding of time, efforts, and sources for each the taxpayers and tax administration. Taxpayers would reasonably be prepared to settle the instances which will even lead to income technology for the tax administration,” mentioned Ashish Mehta, companion on the regulation agency Khaitan & Co.

For the reason that regulation permits prosecution proceedings to proceed even after an individual coughs up 120% (as tax and penalty), people who’ve obtained notices (together with a few of the massive businessmen and industrialists) have employed high authorized fingers to oppose the tax workplace tooth and nail in courts.

This has induced delays and fewer than optimum use of a robust regulation. Because of the imponderables of court docket outcomes, the federal government now needs to resolve the ‘retrospective’ query with out letting the regulation lose its edge.