Ahead of black money compliance, fear of prosecution under PMLA

Those keen to avail of the compliance window can declare their foreign assets and income and pay tax and a penalty, each at 30% of the value of the undeclared assets

With only weeks left before the compliance window under the black money law to come into force, there are concerns that even a person paying taxes and penalties on previously undeclared assets could yet be prosecuted under the Prevention of Money Laundering Act (PMLA).

This is because the Undisclosed Income and Foreign Assets Act, as the black money law is officially known, does not say fresh declaration of undisclosed money or properties abroad will not be used as evidence for prosecution under PMLA. The black money Act offers protection from prosecution under four other laws - Wealth-tax Act, Foreign Exchange Management Act, Companies Act, and the Customs Act.

Those keen to avail of the compliance window can declare their foreign assets and income and pay tax and a penalty, each at 30 per cent of the value of the undeclared assets. After the window is over and the Act is enforced from the next financial year, those with undeclared assets and income abroad will have to pay tax of 30 per cent and a penalty of 90 per cent.

According to tax experts and analysts, unless the Central Board of Direct Taxes clarifies its stance on PMLA, people with unaccounted wealth and assets abroad might not declare their assets for fear of prosecution later.

“There are only four Acts named under which a person or an entity cannot be prosecuted once taxes and penalties are paid under the compliance window. What needs to be clarified though, is the possibility of prosecution under PMLA. Unless that happens, people may be apprehensive before declaring their undisclosed assets,” said Rakesh Nangia, senior partner and founder, Nangia & Co.

“In fact, I would venture to say that unless the undeclared wealth has been gotten from, or is being used for, any scheduled offence or nefarious activity, a person or entity should get immunity from other laws,” Nangia added.

Tax experts say the confusion is made worse with the black money Act, passed in Parliament in May and assented by the President, proposing to amend PMLA to include tax evasion in relation to undisclosed foreign income and assets under the proposed legislation as a scheduled offence.  

However, senior government officials sought to dispel the concern saying the four laws cited in the black money Act are enough to safeguard against any later prosecution under other laws. They say PMLA can only be invoked if there is a predicated offence committed with regard to the money.

“For PMLA to be invoked, an offence has to be committed first. Only if the money is being laundered through illegal means or for illegal uses as per the list of offences, will the PMLA apply,” said a government official. The person added that there would be no changes to the black money law as of now and PMLA would not be included in the list of Acts from which immunity was guaranteed under the compliance window.

There are 147 offences for which PMLA can be invoked, in addition to other laws. These offences come under the Indian Penal Code, the Narcotic Drugs and Psychotropic Substances Act, the Explosive Substances Act, Unlawful Activities (Prevention) Act, Arms Act, Wildlife Protection Act, Prevention of Corruption Act, and 21 others Acts of law.

These offences can range from anything to forgery, smuggling, fixing, arms racketeering, to prostitution, terror funding, breach of confidentiality, and even polluting the environment.