The income-tax authorities may soon get sweeping powers to investigate and prosecute those suspected of hawala transactions, creating a strong deterrent for the channel used extensively for money laundering.
The proposed changes are likely to be included in the direct taxes code and could shift the burden of proof on the accused, said an income tax department official.
Besides, this is the first time that the income tax law will seek to punish not just the tax evader but also the one who aids the process.
More powers are needed to collect information or to prove the act of, said S S Khan, a former member of the CBDT, who also headed a panel that examined all issues concerning hawala transactions.
The board has also written to the law ministry for creation of special courts for fast-tracking prosecution of tax evasion cases, including hawala.
Hawala refers to transfer of funds using informal channels such as money brokers usually overseas. It could also involve laundering money by channelling it through multiple accounts or showing non-existent sale or purchase of goods.
The new code, which will replace the five-decade old tax law, is currently in the works and the CBDT is expected to put out the second draft of the proposed law in public domain in one or two months.
Any person aiding in hawala process by allowing deposit from an unexplained source in his bank account or by issuing bills for sale of services or goods without actual transfer may be notified as a hawala entry operator, as per the proposal.
Taxmen will also have powers to arrest without a warrant an accused found facilitating hawala.
The proposal has its roots in an earlier CBDT committee set up to examine all the issues related to hawala transactions, difficulties in tackling hawala transactions and its operators.
The onus of proving the source or origin of hawala transactions will lie with the accused , the official added.
While the provisions would have been designed to catch the big fish, something as petty as a false expense claimed by an employee could invite imprisonment, both for him and the guy who helped him with the false receipt, said Amitabh Singh, partner, Tax & Regulatory Services, Ernst & Young suggesting that the provision may be harsh.
In 2004, the finance ministry had amended the income tax law and made falsification of books of accounts or documents punishable by three months to three years of imprisonment.
The ministry is now making the law more rigorous to tackle laundering. Moreover, with these changes, these offences will be cognizable. For cognizable offences, authorities do not require to furnish a warrant to carry out an arrest.
The CBDT has also written to the revenue department to include offences such as concealment of income, not filing income tax returns, failure to deposit tax deducted at source and giving false evidence under the ambit of Prevention of Money Laundering Act or PMLA. Inclusion of these offences under PMLA will ensure faster trial.