In a bid to tackle tax evasion and check generation of illicit money, the government is considering classifying earnings from illegitimate sources like bribery and corruption as criminal offences under the income tax laws.
"The income earned from illegitimate means could be classified as a criminal offence in the Income Tax Act", said a senior finance ministry official.
The official said that the issue of tightening the tax laws is being considered by a committee set up by the government to suggest measures to check the menace of black money and prevent its generation.
Generally tax avoidance on income earned through legitimate sources is treated as a civil offence under the Income Tax Act.
Elaborating on the possible illegitimate sources, the earnings from which could be classified as a criminal offence, the official said, "these could include income from bribe, corruption, terrorism, narcotics, money laundering etc".
Once such deeds are classified as "criminal offences" under the Income Tax laws, it would become easier for the tax authorities to "quickly book" such culprits and recover the income from illegitimate means, sources said.
The issue of making tax evasion a criminal offence is being considered by a high-powered committee headed by the chairman of the Central Board of Direct Taxes (CBDT).
The mandate of the panel is to suggest within six months changes in laws to curb generation and recover black money and prevent its illegal transfer abroad.
Besides, the government has also set up a Directorate of Income Tax (Criminal Investigation) to deal with grave tax-related offences.
The government has adopted a five-fold strategy to tackle the menace of illicit funds which include joining global crusade against black money and creating appropriate legislative framework.
Although the current Income Tax provides for rigorous imprisonment up to seven years for wilful tax default, the provision has not been used effectively to unearth black money.
Under section 276C of the Income Tax Act, 1961, persons wilfully attempting to evade taxes, penalty or interest can be punished with rigorous imprisonment ranging from three months to seven years with fine.