Undeclared incomes: Tax info-sharing agreements is a step in the right direction
Almost every country and every government now is fighting to detect undeclared Incomes and boost their tax collection. This could potentially help various countries show and collect large taxes from offshore accounts. The renewed thrust on automatic exchange of information (AEOI) between countries could achieve what seemed like a dream about eradication of black money. These are starting steps and in good direction.
In September 2015, India and the US entered into an agreement to trail the assets of citizens/tax residents of either country held in the other country. The Foreign Account Tax Compliance Act (FATCA) was made a law in 2010 in the US and India has agreed to collect and share information under the agreement with the US for implementing FATCA.
Under FATCA, financial institutions like insurance, banking, private equity and stockbrokers etc. in India will have to report their US client details to the Indian tax department, which, in turn, will share with the Internal Revenue Service (IRS). The information could be details of assets and income earned from these assets. Similarly, the IRS will share details of Indians holding assets in the US with the Indian tax department. The IRS will collect the details from the US financial institutions mentioned in FACTA and will share with Indian Government.
NRIs and US citizens in India need to ensure that correct compliance is done to avoid problems later on. Even if an income is exempt from tax here in India, it could be taxable in the US and subject to federal/state taxes. Those Indians who illegally hold bank accounts, investment or assets outside India may face tax enquiries and face consequences for hiding information.
Further, the Organization for Economic Cooperation and Development (OECD) has also implemented rules for AEOI and has introduced “Common Reporting Standards” (CRS) to meet this. CRS and FATCA have common objectives and operational similarities.
The Central Board of Direct Taxes (CBDT) has already notified rules through the Income Tax (11th Amendment) Rules, 2015, for the implementation of FATCA/CRS reporting. By January 2017 and September 2018, respectively, information collected under FATCA and CRS, respectively, will be available to be shared between those countries which have signed tax information-sharing agreements.
There are very high chances that global assets will likely come under the tax scanner sooner than later due to these renewed tax-sharing mechanism globally. It is high time that defaulters in India declare their assets and Income under the “Income Tax Declaration Scheme 2016” announced by the tax department and sleep peacefully.
The efforts of the Government for engaging globally to detect black money are appreciable. It is also important to understand that all these mechanisms are for detecting black money in business or with individuals mostly in businesses. The Government needs to bring clarity around detecting the bribe money, too, which no one will declare under this scheme.
