Currently, over 250,000 firms in India have not paid income tax to the authorities but declared massive dividends to their shareholders. The anomaly in tax laws has remained a major cause of tax evasion by these firms. The proposal will lend credence to the process which started in 2016 to weed out black money from the Indian economy.
New Delhi (Sputnik): In a mega anti-black money exercise, the Indian government has planned to tax over 250,000 firms which have been showing losses for years to evade income tax.
The step is likely to be announced in July when India’s re-elected Narendra Modi government presents the country’s annual budget for the financial year 2019-2020.
A finance ministry official said on the condition of anonymity that tax rate would be much lower than the current minimum alternative tax (MAT) rate which currently stood at 18.5 per cent.
The purpose of such a step aims to bring all the intentional tax evader firms under the tax net. Once they start reporting to the income tax department, the things will be much clear as how can a firm declare huge profits and pay dividends to shareholders under the Companies Act and, at the same time, the same company shows zero earning to the income tax department.
In the past three years, the Indian government has taken several steps to weed out shell companies that are used as a tool to disguise the ownership of assets or to transfer funds illicitly and avoid taxes.
The Indian government considers any firm, which is not carrying on any business or operation for a period of two immediately preceding financial years and has not made any application within such period for obtaining the status of a dormant company under the Companies Act, as shell companies.
Around 226,000 companies were struck off from the Register of Companies in 2017 while, a total of 225,910 companies had been identified for action in 2018 and after following due process of law, names of 100,150 companies have been struck off from the Register of Companies.
The government had taken action on the basis of recommendation of a Special Task Force which designed certain red flag indicators as alerts for identification of shell companies. India’s apex anti-corruption agency Central Bureau of Investigation (CBI) has registered 91 cases against 632 shell companies in last three years.