An income tax inquiry now threatens the delicately poised Indo-US relationship, highly-placed government sources have told HT. The ministry of external affairs (MEA) has conveyed the inquiry details to the US embassy. Coming close on the heels of the spat involving diplomat Devyani Khobragade, rattled American diplomats are now urging India to arrive at ''an understanding.''
Despite reminders from the MEA, the US embassy, is yet to provide details of how many teachers are employed at the American Embassy School in violation of visa and tax laws.
The inquiry into what officials believe could be 'a multi-crore tax evasion' saw the issue being raised by assistant secretary of state, Nisha Biswal, during her first visit to India, earlier this month. Confirming the information, MEA Spokesperson Syed Akbaruddin told HT, "These issues were raised before the assistant secretary of state. We intend to address them through the mechanism of a working group."
Soon after Khobragade's arrest and strip search last December, MEA had sought detailed information on how many teachers were employed at the school, their salaries and bank account details. When asked for a comment on the probe, a US embassy spokesperson said, "We continue to engage in discussions with our Indian counterparts on all issues that have been raised through appropriate diplomatic channels."
In a major embarrassment for the embassy, the New York Times had published an article in January, establishing that the teachers were in violation of Indian tax laws, because they were advised in a circulated handout to wrongly represent themselves as housewives. Quoting from the handout, NYT had said, "we usually have the male spouse apply for the 'employment' visa and the female spouse be noted as 'housewife' on the visa application."
Facing the income tax heat, the US now wants to settle the issue through a broader understanding that, government sources say, would be accommodative of India's concerns. The US is caught on the wrong foot because the school has violated the 1973 agreement according to which India had granted tax exemption status to only 16 teachers.
While sources said it was too early to say if a deal could be worked out, India is keen on settling two issues to avoid a repeat of the Khobragade affair. For one, it wants to settle the privileges and immunities of its consulate staff, which are currently not at par with diplomats. Secondly, India wants domestics employed by diplomats in US to be subjected to Indian law, were another dispute to arise, as it did in the case of Khobragade and her domestic help, Sangeeta Richards.