Want to fight tax evasion and black money?

The Government has recently notified the constitution of a committee to examine the ways of strengthening the law in relation to black money. The committee will deal with the following specific questions, inter alia :-

1. Declaring wealth generated illegally as national asset;
2. Enacting/amending laws to confiscate and recover such assets;
3. Providing exemplary punishment against its perpetrators.

The committee shall give its report in 6 months.

The committee also invites views of all stakeholders at: bm-feedback@nic.in

The notification is available here.

News Updates

1. The Income Tax Department has issued Circular No. 3/2011 which basically deals with the digital authentication of form 16A for the purposes of Tax Deducted at Source. It was felt important as for 16A is filed quarterly.

2. India has also entered into DTAA's with Ethiopia (Press release & DTAA) and Tanzania (Press release and DTAA). Both the agreements incorporate the provisions of effective exchange of information, based on Article 26 of the OECD Model DTAA.

Bodyshopping by IT Companies

A new controversy has been raked up after the Income-tax department issued a scrutiny notice to Wipro regarding ‘bodyshopping’. (News report available here)

Bodyshopping refers to a situation where an Indian IT Company sends its software engineers for short assignments abroad. The payment for the services of the professionals are paid directly to the company and the salary is paid to the professional by the Indian IT Company.

The Indian IT Companies do not pay tax/pay a very limited amount of tax on the income thus derived from the foreign companies as they claim exemption u/s 10A of the Income-tax Act, 1961 (“export of articles or things or computer software”).

Now the question before the relevant authorities/courts would be whether this export is actually an export of computer software or export of manpower.

Secondly, the authorities/courts would also have to examine whether the work done ‘onshore’ i.e. outside India, would qualify for the exemption.

Suggested readings:

Outsourcing law (US)

Wikipedia

Livemint article

News Updates

1. India has notified the Tax Information Exchange Agreements entered into with Isle of Man and The Bahamas.

2. The CBDT has come out with Circular No. 2 of 2011 which details the procedure for regulating refund of excess amount of TDS deducted and/or paid.

3. It is now mandatory for all stock exchanges to maintain and report monthly data to the Department vide notification 14 dated 9th March, 2011.

4. A new Directorate of Income Tax (Expenditure Budget) has been created under the CBDT by the President vide notification 15 dated 18th March, 2011.

5. The Indian Society of International Law, New Delhi has been exempt under section 35(1)(iii) of the Income Tax Act, 1961 vide notification 22 dated 28th April, 2011.

News Updates: New Return Forms for AY 2011-12

CBDT notifies New Income Tax Return Forms for the Assessment Year 2011-12 (available here).

OECD Updates

1. Valuation of intangibles in the area of Transfer Pricing is a contentious issue and is subject to debate. The OECD met with business commentators on the valuation of intangibles for transfer pricing purposes for a seamless and consistent application of the valuation techniques. The objective is to make sure that the Transfer Pricing valuation is done in accordance with the arms length principle. The meeting is reported here.

2. The Global Forum of Transparency has added Ghana, Georgia and Nigeria to its member list (see here). OECD reports that the pressure has been kept up on the global fight against tax evasion. The updates are available here.

Circular 1 of 2011

The Income tax department has issued Circular No. 1 of 2011 dated 6th April, 2011.

The Circular is entitled "Explanatory notes to the provisions of the Finance Act, 2010".

The circular is available here.

Convention on Mutual Administrative Assistance in Tax Matters

Spain has recently signed an updated Convention on Mutual Administrative Assistance in Tax Matters (available here).

This treaty is a step ahead of Tax Information Exchange Agreements (TIEAs) and provides for Mutual Administrative Assistance between two or more nations in tax matters.

The Unofficial Consolidated Text Of The Convention On Mutual Administrative Assistance in Tax Matters As Amended By The 2010 Protocol is available here.

India had recently concluded a DTAA + Mutual Administrative Assistance in Tax Matters available here.

Tax Information Exchange Agreement with Bahamas

India has recently entered into a Tax Information Exchange Agreement(TIEA) with Bahamas.
This agreement lists as the fourth agreement that has been entered into by India, after Bermuda, Isle of Man and British Virgin Islands.

The Press Release in this regard is available here.
The text of the agreement is available here.

We shall soon have a post relating to TIEA's and their efficacy in dealing with information sharing between nations.

News Updates: Information Sharing Agreement with British Virgin Islands

India has signed a Tax Information Exchange Agreement (TIEA) with British Virgin Islands.
This would allow the Indian authorities to access information from countries often labeled as 'tax havens'. The information would be shared by the countries in case of placement of a specific request.

The TIEA with British Virgin Islands is available here.

The Economic Times reports the India is vetting a proposal to impose tax sanctions against countries that refuse to share information on suspected tax evaders.

The news report is available here.

Press release by the CBDT

The CBDT has issued a press release on 7th February, 2011.

The net tax collection has registered a growth of 20.37% in a period from April 2011 to January, 2011.

The release also reflects the expedient handling of returns by the Centralized
Processing Center of the Income Tax Department at Bengaluru.

The press release is available here.

Departmental Updates

The Income tax department has come up with the instructions regarding Income limits for assigning cases for Deputy Commissioners / Assistant Commissioners / ITOs.

The instructions are available here.

News Updates: Avoidance of Double Taxation with SAARC Nations

The Government of India, Ministry of Finance, Department of Revenue has entered and published in the Gazette dated 10th January, 2011 a notification u/s 90 of the Income Tax Act, 1961 to avoid double taxation with SAARC Nations.

The agreement would be enforced from the 1st of April, 2011.
The text of the notification and the DTAA is available here.

Revised Indo-Norway DTAA

India and Norway have entered into a revised DTAA for exchange of information between the two countries to prevent flows of black money and check tax evasion.

The news report is available here.
Salient features of the DTAA are available here.

Technological Assistance for the IT Dept.

During the recent raids at homes of leading bollywood actresses, the IT Department has pressed into service its newly acquired 'weapon': FREDDIE (Forensic Recovery of Evidence Device Diminutive Interrogation Unit).
It collects voluminous data in very less time and is a counter to logic bombs.

The powers of the IT Department relating to Search and Seizure are laid down in section 132 of the Income Tax Act, 1961.

Read more about the recent usage of FREDDIE here.