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Panama Papers: Why Indians named in list may get away with a small fine

Most of the 500 Indians featured in the ‘Panama Papers’ for alleged tax evasion could get away with a simple fine instead of facing stricter action and jail time due to legalities governing the recovery of information.

india Updated: Apr 05, 2016 10:23 IST
Abhishek Sharan
Panama Papers

Leaked files from the Mossack Fonseca law firm in Panama City include details on offshore entities with allegedly dubious offshore financial dealings.(Carlos Jasso /Reuters )

Most of the 500 Indians featured in the ‘Panama Papers’ for alleged tax evasion could get away with a simple fine instead of facing stricter action and jail time due to legalities governing the recovery of information.

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The secret list of the Panama-based law firm Mossack Fonseca, as exposed by International Consortium of Investigative Journalists (ICIJ), includes names of politicians, businessmen and filmstars suspected of having stashed foreign exchange abroad and laundering it. However, records on these offshore entities will be supplied to the Indian Income Tax (IT) department by foreign government authorities under the Double Taxation Avoidance Agreement (DTAA) framework meant exclusively for taxation purposes and not prosecution.

This means defaulters will get immunity from being prosecuted under the Prevention of Money Laundering Act (PMLA) law or forex violations under Foreign Exchange Management Act (FEMA), administered by the Enforcement Directorate (ED).

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“Information and records shared with the IT Department by foreign countries within the DTAA framework is only for taxation and bars their sharing with any agency, ED for instance, which may use it for prosecution purposes,” said an ED source. “So, the IT department cannot share documents with ED in the Panama Papers case or else the country supplying the information will raise objections.”

India has DTAA treaties with 88-odd countries. The IT department typically seeks to tax concealed wealth and takes action including imposing a penalty, sending prosecution notices and prosecuting defaulters.  

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Under PMLA, a criminal law, a convict faces rigorous imprisonment between three to seven years while the jail-term could be of 10 years in the case of certain heinous crimes like narcotics-trafficking. Under FEMA, a civil law, the accused could be asked to pay a punitive fine up to three times the worth of the violation.

The ED’s Delhi-based headquarters on Monday sought records pertaining to the 500 individuals from 16 of its zonal units in the country for their examination and “staying in the loop”, said a government source. For taking any further step, the agency will have to wait for case-related information coming via official channels.

Incidentally, among the alleged defaulters is late Iqbal Mirchi, an alleged aide of fugitive Mumbai don Dawood Ibrahim who died in the UK in 2013. The ED is currently probing dozens of assets that were allegedly linked to Mirchi and his associates in Europe and Asia under FEMA.

It was only in August 2013 that Indians were allowed to set up subsidiaries or invest in joint ventures under the Overseas Direct Investment option.

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Following the ICIJ expose, the government announced a multi-agency group – including officers from the Central Board of Direct Taxes’ Financial Intelligence Unit, its Tax Research Unit and also Reserve Bank of India officials – to monitor information flow on wealth hoarded by Indians in tax havens on Monday. The ED will not be a part of this group though. Details of “assets worth Rs.6, 500 crore” have already been found.

The ED had last year sent notices to around 18 Indians who were also under the IT department’s scanner for allegedly holding accounts irregularly in HSBC Geneva. Questions had then been raised as to how ED could procure the data on the individuals even though its notices had not mentioned anything about HSBC Geneva. The ED had relied upon the IT department’s prosecutions in the case. According to a finance ministry official, Switzerland had raised queries on the details allegedly shared by the Indian government, leading to the HSBC Geneva accounts.

After a similar ICIJ expose last year, in which 1,195 Indians were accused of having unaccounted money in the HSBC Geneva bank list, the IT department slapped 121 cases for prosecution of those entities whose names had appeared. Hundred and twenty eight individuals were assessed while undisclosed income to the tune of Rs 4,800 crore was brought under the tax net by March 2015.