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This article is more than 3 year old.

Taxman to plug gaps in rules to make fleeing millionaires pay up

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The finance ministry is likely to soon amend the Income Tax Act and plug the loopholes in tax treaties with other countries to clamp down on tax evasion by High Net Worth Individuals exiting the country to settle abroad.

Taxman to plug gaps in rules to make fleeing millionaires pay up
The finance ministry is preparing to amend the Income Tax Act and plug the loopholes in tax treaties with other countries, as it looks to clamp down on tax evasion by High Net Worth Individuals (HNIs) exiting the country to settle abroad, especially in tax havens.
A five-member working group is likely to submit the first set of recommendations by the end of April, sources in the Central Board of Direct Taxes told CNBC-TV18.
CBDT, the central government’s supreme body for direct taxes, created the group on April 5 to assess the risk on tax collections due to a rush of HNIs leaving the country for good.
The group was tasked to come up with recommendations to ensure that migrating affluent Indians -- who it suspects of ducking taxes -- pay up.
A Morgan Stanley report in March 2018 revealed that 4,000 millionaires left Indian shores in 2016 and another 7,000 millionaires in 2017. According to Ruchir Sharma, head of Emerging Markets and Global Macro at Morgan Stanley Investment Management, this is a global record. Some 23,000 millionaires have left the country since 2014, he said.
In an internal note, CBDT had acknowledged that the trend of a growing number of HNIs migrating to other countries poses a substantial tax risk. “The working believes that HNIs are abusing various bilateral and multi-lateral tax treaties to hide income,” one of the persons familiar with the matter said, asking not to be named.
The working group will make recommendations for changes in Place of Effective Management (POEM) norms to determine the roots of foreign companies. It will also prepare a list of HNIs who became NRIs in the past five years.
"HNIS on migration declare only their Indian sourced income for tax purposes and do not declare their global income, which helps them evade taxes. Apart from this, upon migrating or becoming NRIs, HNIs do not come under the purview of the draconian Blackmoney Act,” said Amit Maheshwari, partner at Ashok Maheshwary & Associates LLP.
Tax authorities said the superrich Indians departing the country settle for tax havens such as the UAE, Singapore and Mauritius, among others. “CBDT in addition shall speak to tax authorities in which have seen maximum number of migration of HNIs in the past,” said the person quoted above.
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