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I-T dept may seek details on Swiss bank accounts
February, 02nd 2009

The Central Board of Direct Taxes (CBDT), the apex body for tax matters in India, is actively considering a proposal that will allow the income-tax department to ask for information on accounts held by taxpayers in banks abroad.

According to a person directly involved in the development, CBDT is considering adding a column in I-T returns forms to seek this information.

The proposal, sent last week to the office of CBDT chairman and the Prime Ministers Office, came from KVM Pai, who retired in 2000 as chief commissioner of income-tax, Mumbai.

One of the major assignments Mr Pai had carried out during his career was the assessment of tax liabilities of the accused in the 1992 securities scam, including the Harshad Mehta group.

Mr Pais proposal is contained in a document prepared by him on the generation of black money in the Indian economy and the I-T departments role in checking it.

The suggestions made by Mr Pai assume importance. When contacted by ET, NB Singh, CBDT chairman, said: These suggestions should be acted upon. Mr Pais proposals come in the wake of reports in the foreign media, of deposits held by Indians in Swiss banks and other tax havens, which is higher than the total value of deposits held by citizens
of other countries.

The proposal also calls for a change in regulations that will enable the I-T department to reopen the assessment beyond six years as stipulated now, in case the taxpayer is found having undisclosed accounts abroad.

Omission of information or furnishing wrong information may invite penalties. Thus, those with bank deposits held abroad will run the risk of penalties if they do not disclose this.

Holding accounts abroad without informing the Reserve Bank of India (RBI) violates Indian laws, especially the Foreign Exchange Management Act (FEMA).

If the proposal does become law, the information furnished will be open for verification by the I-T department. Unlike before, this is possible now, because Swiss banks, bowing to international pressure after 9/11, are more open to parting with information. Mr Pais proposal is in view of the new found openness of Swiss banks.

The proposal could also turn out to be the first step on the part of the Government of India to bring in at least part of the money concealed from the I-T department and stashed away abroad. According to a report from a trade body representing Swiss banks and quoted by Mr Pai, Indians hold deposits worth $1,456 billion, an amount much larger than the value of deposits held by others.

Deposits from Russia are estimated at $470 billion, $390 billion from the UK, $100 billion from Ukraine and $96 billion from China. However, the veracity of this number, $1.456 trillion, which is more than the size of Indias GDP could not be independently verified. On the face of it, the figure is implausibly high.

More so, as China, with an economy three times larger than India, has deposits of just $96 billion. Nonetheless, whatever the correct figure,  there is enough anecdotal evidence of more Indian money being stashed away in Switzerland.

Interestingly, of the 80,000 Indians visiting Switzerland, which is also a popular tourist getaway besides being a preferred locale for Hindi films, more than a third are regular visitors, who go to that country every year. The document sent to CBDT also has reference to media reports from Europe lamenting Indias reluctance to approach banks
for details of Indians having deposits abroad.

From his experience as an investigator while in the service of the department, Mr Pai had come across several instances which proved that Indians have undisclosed deposits in other countries such as the UK, France, Canada, the Isle of Man and Dubai.

Dubai is also as secretive as Swiss banks, Mr Pai stated, citing the difficulty he faced while investigating the overseas bank accounts of Harshad Mehta group, who was at the centre of the 1992 securities
scam. The amount deposited in banks abroad was obviously not reported to Indian tax authorities.

According a study carried out by the department on the basis of data collected from surveys carried out by it, only 25% of the income is offered for taxation in Mumbai, which accounts for 35% of the income tax and 43% of the corporate tax collected in the country. The result of the survey had been reported to the authorities. Yet, the conclusion of the survey has not been challenged yet.

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