The subject of undisclosed income in foreign accounts is gaining significant attention in India. Recently, the nation’s Finance Minister announced that over Rs 8,468 crore from undisclosed income has been brought to tax and a penalty of more than Rs 1,294 crore has been levied. This article delves deeper into the concept of undisclosed income, its impact on the economy, and the Indian government’s initiatives to tackle it.
Understanding Undisclosed Income
Undisclosed income refers to the earnings that a taxpayer does not reveal in their Income Tax Return, avoiding the payment of tax. It encompasses various forms such as money, bullion, jewellery, valuable articles, or any income recorded in the books of account or other documents or transactions but not disclosed for Income Tax purposes.
Finance Minister’s Disclosure on Undisclosed Income
The Finance Minister stated that assessments have been carried out for 368 cases, leading to a tax demand of Rs 14,820 crore under the Black Money Act of 2015. About 648 disclosures involving undisclosed foreign assets worth Rs 4,164 crore were made during the three-month compliance window in 2015. These cases resulted in the collection of approximately Rs 2,476 crore as tax and penalty. According to the Bank for International Settlements’ locational banking statistics, deposits by Indian individuals in Swiss banks saw an 8.3% decline in 2021.
Black Money Act, 2015: An Overview
The Black Money Act, 2015 penalises the hiding of foreign income and imposes criminal liability for tax evasion related to foreign income. The Act offered a one-time opportunity for Indian residents to declare undisclosed foreign income and assets. A tax rate of 30% and an equivalent penalty amount was mandated for concealment of overseas wealth. However, in cases of non-declaration, a 30% tax rate and a penalty three times the evaded tax amount or 90% of the undisclosed income were applied.
Government’s Measures against Undisclosed Income
Several steps have been taken by the government to curb undisclosed income. These include the demonetisation policy, the enactment of the Fugitive Economic Offenders Act, 2018, the Prevention of Money Laundering Act, 2002, and the Benami Transactions (Prohibition) Amendment Act, 2016.
Way Forward: Strategies to Curb Undisclosed Income
To further combat black money, several strategies have been proposed. The Federation of Indian Chambers of Commerce and Industry suggests incentivising transactions through banking channels and establishing a suitable framework for taxing agricultural income. Some experts argue for electoral reforms to reduce the influence of money in elections, a significant channel for black money utilisation. Lastly, training personnel domestically and internationally for effective action in the related area is also advised.
Previous Year Questions in UPSC Civil Services Examination
Candidates preparing for the civil services examination can utilise the following previous year questions relating to the topic:
1. “Discuss how emerging technologies and globalisation contribute to money laundering. Elaborate measures to tackle the problem of money laundering both at national and international levels.” – (2021)
2. “India’s proximity to two of the world’s biggest illicit opium-growing states has enhanced her internal security concerns. Explain the linkages between drug trafficking and other illicit activities such as gunrunning, money laundering, and human trafficking. What counter-measures should be taken to prevent the same?” – (2018)
