Foreign banks are spooked by India’s new black money law, taking caution before opening accounts

The pursuit of the Indian government to bring back black money has tensed banks overseas and are asking tough questions about people and entities from the country who looking to open accounts with them.

Apart from exercising caution about those who possess unaccounted wealth and are liable for punishment, banks are weary of the fact that those found guilty of helping them move that money will also face harsh action under the new law.

A number of tax havens like the Isle of Man and the British Virgin Islands have begun to share data on bank accounts held there.

This comes in the backdrop of countries signing global agreements and tax treaties, which include provisions for cooperation on evasion.

In the backdrop of reduced global tolerance for evasion, banks are likely to face closer scrutiny relating to customers' tax residential status, legal and beneficial ownership of accounts, and their use of power of attorney.

Such intermediaries are asking for income tax returns, sources of funds and other related information to ensure all foreign transactions are above board, a banker familiar with the development told Economic Times.

“The new law has caused concerns amongst intermediaries such as banks and consultants... especially considering that the law does not provide for detailed guidelines on what could be considered abetment and what precautions would be necessary for such intermediaries," Rajesh H Gandhi, partner, tax, Deloitte Haskins & Sells LLP told ET.

The Central Board of Direct Taxes, the apex direct taxes body, will soon issue detailed guidelines on what it considers abetment and the action that will be taken, said a finance ministry official.

Under the Undisclosed Foreign Income and Assets (Imposition of Tax) Act 2015 imposes civil and criminal liabilities on any person who helps or induces another to make a wrong declaration relating to tax. This will be punishable with rigorous imprisonment ranging from six months to seven years. This provision also applies on banks and financial institutions aiding the concealment of foreign income, assets of resident Indians or falsification of documents.

The law makes hiding wealth overseas a criminal offence attracting up to 10 years of rigorous imprisonment.