Crime
ED & IT Department Crack Down on Undeclared Foreign Assets of HNIs
In a fresh crackdown on black money and undeclared foreign assets, the Enforcement Directorate (ED) and Income Tax Department are conducting separate investigations targeting High Net-Worth Individuals (HNIs) with offshore holdings that do not align with government records, according to sources.
ED’s Investigation Focuses on FEMA Violations
The ED is investigating HNIs for potential violations under the Foreign Exchange Management Act (FEMA). Their focus is on undeclared properties abroad, especially those held via offshore entities in tax havens like the British Virgin Islands and Dubai. The agency is looking into financial irregularities linked to these properties.
Income Tax Dept Probing Undeclared Foreign Assets
Meanwhile, the Income Tax Department is conducting a parallel probe under the Black Money Act. Their investigation is centered on HNIs with undeclared foreign bank accounts, cash-value insurance contracts, immovable properties, capital assets, equity and debt investments, trusts, and other offshore financial interests.
According to sources, the Income Tax Department has begun sending notices and inquiries to HNIs based on discrepancies between declared income and department records. This action follows the closure of a special voluntary disclosure window on December 31, where taxpayers were encouraged to self-report foreign assets. The department had warned that failure to disclose such assets in income tax returns (ITR) could attract penalties of Rs 10 lakh.
Legal Ramifications and Coordination Between ED and IT Dept
Amit Maheshwari, tax partner at AKM Global, highlighted the serious legal implications of these investigations. He noted that violations of FEMA could lead to criminal prosecution under Section 13 (1C) of FEMA.
Additionally, undeclared foreign assets and income could result in penalties and prosecution under Section 51 of the Black Money Act, which is a scheduled offense under the Prevention of Money Laundering Act (PMLA). The ED and Income Tax Department can share information under Section 66 of PMLA, increasing the legal risks for HNIs with undisclosed assets abroad.
The final outcome of these probes remains uncertain, but the investigations are expected to recover significant amounts of undeclared wealth and increase tax revenue.