In his last Budget speech, finance minister Arun Jaitley used the term “black money” 13 times. Describing it as something that eats into the vitals of Indian economy and society, Jaitley vividly spelt out the contours of a proposed law on black money through which evasion of tax on foreign assets would attract a rigorous imprisonment of up to 10 years, at par with attempt to murder under Section 307 of the Indian Penal Code ( IPC ).There was optimism in the air then that the stringent penalty that came with a one-time compliance window would facilitate the return of a large chunk of money stashed abroad, estimated or rather guesstimated to be in the range of $500 billion to a couple of trillion dollars.As Jaitley gears up to present Union Budget 2016-17 on February 29, will he come up with a renewed gambit to tackle the scourge of unaccounted money?After all, the results of the new Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 haven’t exactly been flattering. The government managed to detect just Rs 4,164 crore of foreign money of Indian origin through the compliance window under the new Act that came into force from July 1, 2015.Only 644 people, many of whom are believed to be information technology professionals, doctors and small businessmen — not the real black money hoarders, by any stretch — responded to the government’s call. And what came into the government’s coffers as tax and penalty out of those foreign assets is a meagre Rs 2,428 crore, or Rs 20 per Indian, way below the pre-2014 Lok Sabha election slogan of Rs 15 lakh per Indian.



The government also detected Rs 6,500 crore of assets lying abroad thanks to the leaked information of HSBC account holders in Switzerland, but that assessment was largely done in the financial year of 2013-14 under the second United Progressive Alliance (UPA-II) regime, making it difficult for the present government to appropriate any credit.

After speaking with 10 serving and retired tax sleuths, ET Magazine has arrived at two conclusions. First, it’s a myth that billions of dollars of Indian origin are still lying in foreign accounts, or more precisely in Swiss bank accounts, even as India has witnessed a huge political debate over black money stashed abroad for decades.

The reality is, black money is no longer static and it moves on the click of a mouse to chase better returns. Second, or more shockingly, much of the big-ticket scam money — whether it’s 2G spectrum allocation or coal block allocation — may have actually returned to India, partly via legal channels.

“The scam money has already come back to India through foreign direct investment (FDI), foreign institutional investors (FIIs) and fake exports, among other routes. I suspect the big FDI surge is partly because of the return of ill-gotten Indian money,” says R Prasad, former Central Board of Direct Taxes ( CBDT ) chairman without mincing words.A little analysis of the data will ascertain that India’s FDI, which has grown by 48% in the last 19 months — when there has been a fall globally — is dependent on a few small nations.For example, between April 15 and September 15, 2015, India received $16.6 billion (Rs 1.06 lakh crore) FDI out of which a whopping 62% came only from two small nations, Singapore and Mauritius. Significantly, another tax haven Cyprus figures in the top 10 nations contributing India’s FDI.“Investments coming from the tax havens are quite opaque in nature. But our law allows it. So, we can’t do much on this front. We can’t ask a company about the real antecedents of a big investment coming from Cyprus, Mauritius or Cayman Islands,” says a commissioner-ranked Income-Tax officer, adding that the department had already pursued a number of cases on foreign money after the compliance window under the black money law ended on December 31, 2015.Central Vigilance Commissioner (CVC) KV Chowdary who in his earlier tenure in the I-T department had visited Singapore, Malaysia, Thailand, Switzerland and France, among other countries, for investigation of tax evasion cases, concedes that there could be some amount of black money routed through the tax havens.“But the mere fact that a dollar has come from Singapore, Mauritius or Cayman Islands does not necessarily mean it’s a black dollar. Our law has permitted it. And, sometimes, black dollars may also come from the US and the UK,” he adds (see “Money has been Going out and Coming Back”).Indian tax authorities by now have clearly understood the patterns of flow of black money of Indian origin abroad after following up over 300 accounts belonging to LGT Bank of Liechtenstein and HSBC’s Geneva branch, Switzerland. The Indian government in 2011 managed to get from its French counterpart the details of 628 Indians with accounts in HSBC Geneva.But there was duplication in the names, as also some cases of citizens becoming Non-Resident Indians (NRIs), resulting in a realistic list of some 300. But that exercise, though based on stolen data, not only led to the detection of Rs 6,500 crore of foreign money of Indian origin, mainly in 2013-14, but allowed the tax authorities to draw several conclusions that would determine their future course of action.Yes, accounts opened in the ’70s were also spotted, but there was no cash in many of them. Tax sleuths are convinced today that there are Indians who in recent years have invested chunks of their black money in real estate markets like the UK and the UAE rather than stashing it in Swiss banks So, despite Indian government today receiving information from those tax havens with which it has treaties, it may make more sense for the taxmen to follow the real estate asset trail abroad rather than attempt to scrutinise foreign bank accounts to catch the evaders.Devi Dayal, a Kolkata-based former chief commissioner of Income-Tax and author of Black Money and Taxing Times, argues that the people with huge black money abroad still have safe places to hide their ill-gotten wealth. And that’s precisely why their tax consultants advised them not to disclose their unaccounted-for stash when the one-time compliance window was offered by the government last year.“There are as many as 80 foreign tax havens and only a few have agreed to share information (via treaties). Account holders will transfer and hide their funds in the tax havens that have not agreed to exchange information,” says Dayal (see “Unaccounted Forex is Invested in P-Notes”).In this backdrop, Jaitley in his forthcoming Budget is unlikely to hype up the foreign money issue, now that the 2014 Lok Sabha poll campaign promise, of every Indian receiving Rs 15 lakh once the foreign money is brought back, is all but a distant memory. Yet, the finance minister can’t afford to ignore the black money saga altogether. No doubt the government has taken a number of steps including enacting of the black money law, introduction of RuPay debit cards (to discourage cash transactions), mandatory quoting of permanent account number (PAN) for any purchase or sale of goods or services exceeding Rs 2 lakh to curb black money.And Jaitley may give a snapshot of what the government has achieved so far to tackle the black money menace before shifting the focus to domestic black money. As of now, though, what’s clear is that money launderers have plenty of alternatives — from tax havens that haven’t signed treaties to real estate assets in global markets — that will ensure they don’t have to worry about spending up to a decade in jail. For the authorities, however, the hunt for the black stash continues, and it wouldn’t be a bad idea to intensify that pursuit in the destination where much of that heap may have found a refuge — home.