Budget 2019 tightens the noose around NRI tax evaders, charitable trusts

Budget proposes a series of conditions under which a registration to an institution could be cancelled

Non-resident Indians (NRIs) fleeing abroad to avoid prosecution will fall under the ambit of the Black Money Act with retrospective effect. The move will help law enforcement agencies to pursue undisclosed foreign assets and funds parked abroad. The noose has also been tightened around charitable trusts and non-profit organisations empowering the tax officials to cancel registrations if they fail to comply with the criteria and certain objectives for which they are constituted. 

At present, the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, covers only resident Indians. The Finance Bill has expanded the definition of assessees to include NRIs. The tax department is learnt to have come across several NRIs and entities which featured in various global leaks, such as Panama Leaks and Paradise Papers, which are also being probed under the Act. These names wilfully concealed their foreign accounts to evade tax, said a tax official, adding that this provision will empower them to confiscate assets. 

Amit Maheshwari, managing partner of Ashok Maheshwary & Associates, believes that this could lead to litigation. “This will impact several individuals who may have left the country in the hope of avoiding the draconian Black Money Act. If they were residents in the years where the undisclosed asset was acquired or undisclosed income was earned, they will get covered under this Act. Interestingly, this coverage is retrospective and we expect this to be challenged in court.” 

According to new provisions proposed on charitable trusts, a commissioner-ranked official can cancel the registration if he is not satisfied with the activities of the said entity and believes that it is not genuine and the activities are not in accordance with its objectives. 

The registration could also be cancelled if the tax department noticed that activities of the exempt entity are being carried out in a manner that either whole or any part of its income would cease to be exempt. 

In order to ensure that the trust or institution does not deviate from their objectives, it is proposed to amend Section 12AA of the Income-tax Act. At the time of granting the registration, the principal commissioner must be satisfied that the institution is complying with requirements of any other law, which is material for the purpose of achieving its objectives. 

A registration can also be cancelled after an institution is granted registration at any time under this Section, said the Finance Bill memorandum. 

These amendments will be effective from September 1. The matter comes to the spotlight when the tax department had recently decided to withdraw the exemption to Dorabji Tata Trust for alleged violation of certain conditions relating to “significant compensation” paid to Managing Trustee R Venkataramanan.  

The Finance Bill also proposed allowing power to the central government to constitute inter-ministerial coordination committee who will be responsible for coordination and cooperation across all competent authorities on implementation of Financial Action Task Force Standards.