Tax evasion through foreign assets to be a criminal offence

New Delhi: The announcement by Finance Minister Arun Jaitley categorising tax evasion in relation to holding of illegal foreign assets as a “predicate offence” under anti-money laundering laws has, for the first time, made concealment of income a criminal offence in India.

At present, tax evasion is a civil offence in the country and offenders are prosecuted under relevant sections of the Income Tax Act, which largely talks about penalties with only some “wilful” default cases inviting prosecution and a jail term.

“With the offence of concealment of income or evasion of tax in relation to a foreign asset proposed to be made a predicate offence under the Prevention of Money Laundering Act, India will join the league of those few countries where tax evasion is a criminal offence,” a senior Finance Ministry official said about the announcement in Jaitley’s Budget speech.

Offences under the I-T Act will be the 15th ‘Scheduled Offence’ that would now be put under the predicate offences category following which premier investigating agencies like CBI, Enforcement Directorate, Customs, Police, Narcotics Control Bureau and SEBI will be able to take cognisance and register separate criminal cases under the respective Acts these agencies enforce to check instances of terror financing and narcotics trade.

According to the legal definition, every ‘Scheduled Offence’ is a predicate offence and the occurrence of the same is a prerequisite for initiating a probe into the offence of money laundering, customs duty violation or any other criminal act punishable and prosecutable in India.

“However, violation of tax laws with a foreign asset connection only has been categorised as a predicate offence as of now and evasion in the domestic arena will continue to be treated under the civil I-T laws,” the official said.

The Special Investigation Team (SIT) on black money also recommended to the government in December last year that tax evasion should be made a serious “criminal offence” under Indian laws to force foreign countries to reveal the names and account details of Indians holding illicit wealth abroad.

Major international economies readily cooperate with a foreign country on tax information exchange matters if the case in question is registered under criminal laws like PMLA or Narcotic Drugs and Psychotropic Substances Act.

The Finance Minister, in his Budget speech last week, had also sought to amend the “the definition of proceeds of crime under PMLA” to enable attachment and confiscation of an equivalent asset in India where the asset located abroad cannot be forfeited.

‘Proceeds of crime’ means any property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence.

In many cases, the official said, where the I-T department has established huge tax evasion, the ED or CBI were not able to initiate action under PMLA or IPC as the offence was not categorised as a “predicate offence”.

The laws that, at present, come under the predicate offences list include the Indian Penal Code, 1860; NDPS Act, 1985; Unlawful Activities (Prevention ) Act, 1967; Prevention of Corruption Act, 1988; Customs Act, 1962; SEBI Act, 1992; Copyright Act, 1957; Trade Marks Act, 1999; Information Technology Act, 2000; Explosive Substances Act, 1908; Wild Life (Protection) Act, 1972; Passport Act, 1967; Environment Protection Act, 1986, and the Arms Act, 1959.

“Now, the agencies can prosecute and attach assets in huge tax evasion crimes under anti-money laundering laws and the IPC. One example is the recent HSBC account-holders’ list, where ED could only undertake action under the civil foreign exchange laws but do nothing under PMLA despite indications of money laundering by the accused,” the official said.

Jaitley has also proposed to give more teeth to investigative agencies under the Foreign Exchange Management Act (FEMA) so that in case the illegal assets of an accused are found in an overseas territory, they may be confiscated under this law, which is civil in nature.

“The FEMA is also being amended to the effect that if any foreign exchange, foreign security or any immovable property situated outside India is held in contravention of the provisions of this Act, then action may be taken for seizure and eventual confiscation of assets of equivalent value situated in India.

“These contraventions are also being made liable for levy of penalty and prosecution with punishment of imprisonment up to five years,” the Finance Minister had said.

Jaitley had also announced that a new law to tackle the menace of black money in the country and abroad will be enacted by the government.