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In his speech, Mukherjee said the government would adopt a five-pronged strategy, which includes a study to estimate the amount of black money parked overseas and also to suggest ways to get these funds back into the country. However, he refrained from announcing an amnesty scheme though there were suggestions for it from within the tax department.
For the time being, he has stuck to tightening norms for transfer pricing for companies that transact globally besides halving the tax on dividend received by an Indian company from its foreign affiliate to 15%. Until now, excluding cesses and surcharges, Indian companies had to pay 30% on the dividend they received from their foreign subsidiaries, which often resulted in corporates not repatriating the dividends.
Apart from increasing the emphasis on information exchange between India and other countries on offenders, Mukherjee has also decided to crack down on tax havens that do not share details. The Finance Bill proposes countermeasures that seek to discourage transactions by an Indian entity or an individual with a country that does not share information with India.
The anti-avoidance measure will enable the Indian government to notify any country with ineffective modes of exchanging information as a notified tax jurisdiction with which transactions are to be discouraged.
Under the new rules, transfer pricing rules will kick in the moment an Indian entity enters into a transaction abroad, giving Indian authorities leeway in charging tax.
In addition, no deduction in terms of loan or interest payment and other expenditure, including depreciation arising from the transaction, will be permitted unless certain conditions are met. Further, a payment made to an entity or an individual in the notified jurisdiction will be liable to deduction of tax of as much as 30%. Through these measures, the government is hoping to get rogue tax jurisdictions that just operate as tax-free enclaves to fall in line.
Mukherjee, however, said that considerable progress has been made in the area of information exchange which will help track evaders better. In addition, he said the foreign tax division of the Income Tax department was being strengthened to deal with the issue.