New special unit set up in IT dept to look into undisclosed foreign assets

Black money has been a big issue in India for many decades. Black money includes all funds earned through illegal activity and otherwise legal income that is not recorded for tax purposes. Black money proceeds are usually received in cash from underground economic activity and, as such, are not taxed. Recipients of black money must hide it, spend it only in the underground economy, or attempt to give it the appearance of legitimacy through money laundering.However, the problem of black money is difficult to tackle fully in one go but can be controlled gradually.

The government has now created a specialised wing within the countrywide investigation wings of the Income Tax department to facilitate the agency to initiate focused probe in cases relating to Indians holding undisclosed moveable and immoveable assets overseas. These units are called as Foreign Asset Investigation Units (FAIUs).

Where are these units created?

The FAIUs were created in all 14 investigation directorates of the tax department located in various parts of the country that are primarily tasked to undertake raids and seizures, and develop intelligence to check tax evasion done by various methods.

The CBDT frames policy for the Income Tax department. A total of 69 existing posts in the tax department were “diverted” by the Central Board of Direct Taxes (CBDT) in November last with the approval of the Ministry of Finance for creation of such units.

What was the purpose of the FAIUs?

The FAIUs were created to bring focus on cases of undisclosed assets held abroad by Indians and black money stashed abroad.
India is now getting voluminous data in this context by way of various fresh treaties signed and some of those, which was re-negotiated in the recent past.
India is now in a global regime where automatic exchange of tax information is the norm.
More and more countries and jurisdictions are following the international protocols set by the Organisation for Economic Co-operation and Development (OECD) and the Financial Action Task Force (FATF) for tax transparency and combating instances of global money laundering, terror financing and tax evasion
CBDT now has huge data coming in from various international and domestic sources to check possible illegal foreign assets holding of an individual and hence, a dedicated wing was required to analyse this information and sift through this mountain of data.
The new units would also be assigned to probe cases of Indian entities named in global tax document leaks like the Panama Papers.

From where does India get its information regarding foreign assets?

The major treaties or automatic tax information exchange protocols through which Indian tax authorities get information include the Double Taxation Avoidance Agreement (DTAA), Tax Information Exchange Agreements (TIEAs) and the most recent Foreign Account Tax Compliance Act (FATCA) between India and the US.
FATCA covers automatic sharing of information on bank accounts as well as financial products like equities, mutual funds and insurance, and is aimed at fighting the menace of black money stashed abroad.
Banks, mutual funds, insurance, pension and stock-broking firms will report their Indian client details to the US which will be shared with New Delhi.
Similarly, Indian entities will do a reciprocal information sharing about Americans.
The Income Tax Return (ITR) forms also have a separate column seeking details of foreign assets of an individual or entity and these get obviously matched with the information obtained through automatic exchange from global counterparts.
Any mismatch requires dedicated investigation and the new wing can very well do that job.

Generation of black money and its stashing abroad in tax havens and offshore financial centres have dominated discussions and debate in public. Members of Parliament, the Supreme Court of India and the public at large have unequivocally expressed concern on the issue, particularly after some reports suggested estimates of such unaccounted wealth being held abroad. The FAIUs will be under the authority of the jurisdictional director general of income tax (investigation) rank officer and its work will be directly monitored by the CBDT.

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