Government blames NDA regime for relaxing Income-Tax rules.
Having won the vote on an adjournment motion on black money after a high-voltage debate in Parliament, the UPA government has thrown the issue back in to the BJP’s court.
An internal note of the finance ministry has blamed the erstwhile BJP-led NDA government for removing provisions of the Income Tax Act meant to check the generation of black money. The ministry is now considering bringing back some of those provisions, although with modifications to make them relevant in the current environment, and introduce some new clauses to plug loopholes.
During 2000-2004, when the BJP-led NDA government was in the power, several changes were made to the I-T Act which curtailed the powers of tax authorities to check the flow of illicit funds. Provisions to check black money in the real estate sector were dropped and the time limit for reopening old cases was reduced, the note says.
The provisions of the India-Mauritius tax treaty, which have led to round-tripping of funds, were also changed during this period. The initial provisions of the treaty gave powers to assessing officers to investigate even cases where a person claimed to be a resident of Mauritius. However, in April 2000 the government said a certificate of residence by Mauritian authorities would suffice as evidence.
An amendment to Section 90 of the Act in April 2004 provided that Double Taxation Avoidance Agreements (DTAAs) could be signed with a country for promoting mutual economic relations, trade or investment. This was a deviation from the stated policy of India that the purpose of DTAA is for giving relief from double taxation, exchange of information and recovery of income tax.
The government is now pushing for renegotiation of the treaty with Mauritius. It has completed negotiations with 60 countries, which cover 24 existing DTAAs, 19 new DTAAs and 17 Tax Information Exchange Agreements. Negotiations with 26 countries are under way.
In the real estate sector, considered a major area of generation of black money, provisions to provide information to the tax department about property transactions and check undervaluation of property were dropped by the NDA regime, the note says. A section, providing for a certification on tax liability from an assessing officer in a property transaction, was removed from the I-T Act in June 2001. The provisions of pre-emptive purchase of immovable property were also abolished in July 2002.
The finance ministry is considering measures to tighten the noose around the real estate sector. The idea is to bring all high-value property transactions under the taxman’s watch.
The note also accuses the NDA government of reducing the time limit for re-opening of old assessment cases from 10 years to six years. The ministry is now considering increasing the limit to 16 years.
A number of other decisions were also taken during the NDA regime, seen as restricting the powers of the I-T department to recover arrears and conduct raids. The power of an assessing officer to withhold refunds was taken away in June 2001 for all cases. The requirement of a tax clearance certificate for a person leaving India was diluted in June 2003, which affected the tax department’s powers to recover tax dues from non-residents. The powers to conduct searches, seizures and surveys were also curtailed in the same year. Despite a large part of black money being kept in the form of gold, the investigating officers were not allowed to seize jewellery or bullion or pass prohibitory orders, if the taxpayer claimed those were his ‘stock in trade’.
Finance Minister Pranab Mukherjee had told the Lok Sabha on Wednesday the government would bring a White Paper giving details on black money.
