MARCH 16, 2012

Govt. to Introduce White Paper on Black Money  

By Aasha Gulrajani Swarup

A cash strapped low growth economy has pushed the government to impose greater controls against tax avoidance and evasion.

Following in the footsteps of the US government, Budget 2012 promises to make reporting of overseas assets compulsory for individuals besides allowing increased time for allowing re-opening of IT assessment filings up to 16 years. This extends the period of limitation against the assessee. This would even apply to individuals having a financial interest in any corporate entity outside India, making it mandatory for them to file their tax returns irrespective of taxable income. The proposal would be retrospectively effective from April 2012.

Also, coming close on the footsteps of the Vodafone case outcome, as part of the General Anti-Avoidance Rules (GAAR), the government has empowered the tax department to deny tax benefits to an assessee, if the Revenue was convinced that the transaction was arranged in a manner to evade tax in India.

The government has also sought to bring in a series of measures to deter the generation and use of unaccounted money. There would be a tax of 30 per cent flat imposed on undisclosed money, credits, investments, and expenditure irrespective of the slab of income.

The finance minister has also made it mandatory to deduct tax at source on all transfer of immovable property, other than agricultural land, above a certain threshold, above Rs 20 lakh or Rs 50 lakh, depending on area, at the rate of one per cent of the declared value.

A similar tax deduction at source is proposed to be introduced on purchase of bullion or jewellery above Rs 2 lakh in which case one per cent of the sale consideration would be deemed to be profit and gains of the business. Thus bullion and jewellery retailers are sought to be brought under the ambit of section 206C, making them responsible to deduct tax at source.

The government has also sought to increase the onus of proof on closely-held companies for funds received from shareholders as well as taxing share premium in excess of fair market value.

Budget 2012 has also proposed a system of Advance Pricing Agreement (APA) introduced in the Direct taxes Code of 2010, to significantly bring down tax litigation and provide tax certainty to foreign investors. This measure is seen to be relevant in a globalised economy with expanding cross-border production chains and growing trade within entities of the same group. Accordingly, new sections 92CC and 92CD are sought to be introduced from July 2012.

Under section 92CC, the Board, with the approval of the Central Government, may enter into an advance pricing agreement with any person, determining the arm's length price, specifying the manner in which arm's length price is to be determined, in relation to an international transaction, to be entered into by that person. Thus, the arm's length price of any international transaction would be determined in accordance with the advance pricing agreement, which would be binding on the parties.

The finance minister has proposed to introduce a white paper on measures to tackle the black money in the economy.