Today is March, the 31st; last day of the accounting\/taxation year. Accountants and auditors are having a busy day finalizing accounts, similarly would be \u201csmart\u201d brains using colorable devices to avoid tax or disguise ill-gotten money. An important instrument of such schemes is using income derived from agricultural activities to hide illegal money.<\/p>\n
Agriculture has long been considered the backbone of India’s economy. However, some people have been using it to hide dirty money, which weakens the foundation of our country. Before we dive into the main point, let’s explore this issue further.<\/p>\n
Agricultural income is exempt from Income tax under Section 2 1a of the Income Tax Act. Hence it is necessary to understand the meaning of Agricultural income. The Income Tax Act was amended to add agricultural income to total income for rate purposes.<\/p>\n
Recently, the Finance Minister of India elucidated to the Parliament that the tax authorities are aware and conducting an investigation, as prominent people are masquerading taxable incomes as agricultural earnings. Some mind-boggling numbers from RTI query.<\/p>\n
It is rather interesting to note that, the spike in agricultural income is during the same time, when Indian Government started investigating black money in offshore accounts. Just a mere co-incidence?<\/p>\n
In 2016, when the Government of India announced demonetization of currency notes. But during the this period, Income Tax officers suspected that income attributable to non-agricultural activities was declared as agriculture income. Income Tax returns (ITR) revealed excessive income without adding to income tax liability.<\/p>\n
Imagine this scenario: I’m a politician who’s received illegal money for approving projects. It’s easy for me to disguise this money as agricultural income. All I have to do is buy agricultural land using legal money, register the land in my name, pay stamp duty, and grow some crops to make it look legitimate. After two crop seasons in a year, the money can be easily transferred to my bank account. I make sure to deposit this money in cooperative banks, where there are weak systems and poor controls. I only need an account to park the money temporarily. Gradually, I move these funds to my main banks using cheques or electronic transfers, keeping the amounts just below the threshold to avoid suspicion. Finally, one day, I transfer the money out of India, perhaps to buy a yacht for my beachfront villa. Voila ! declare it as agricultural income, pay taxes on my other incomes. Effectively, I have sown tainted cash in my farm and cultivated legal income. Placement-Layering-Integration anyone?<\/span><\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n Since agricultural income is not taxed, even if a particular assessee is selected for \u201cscrutiny\u201d assessment, which usually happens after 24-36 months; it is easy for him to show land documents evidencing ownership. (Eg: Record of Rights evidenced by 7\/12 extract for showing land & ownership details in Maharashtra)<\/em>. The cultivation proof can be managed by a small paper from the Village Accountant stating crop, area covered, etc. Since there is no full proof system to check land ownership vis-\u00e0-vis cultivation to revenue earned; it\u2019s \u201cAchilles Heel\u201d fraud waiting for the perpetrator to materialize.<\/p>\n Most of agricultural income based clients tend to bank with Co-operative institutions, due to the local patronage and poor controls. Especially the District Central Co-op (DCC) banks are one grey area that is a big fraud waiting to explode. DCC does not directly finance; they finance PACS (Primary Agricultural Co-op Societies) who in turn loan funds to ultimate farmer. So regulations, compliance and control; if exercised is on DCC Banks only and PACS is completely free.<\/p>\n With the excessive linkages and layering in this scheme of things, it\u2019s ideal for disguising \u201ctrails\u201d and using agricultural revenue as a front to convert illegitimate funds. Although, the regulators; RBI, Income Tax Department & State administered Revenue authority are aware of these facts, there are several practical issues. India is a land of diversity, not just geographically; crop pattern wise, season wise and even land measurement system wise. Central India uses, acres conveniently, south uses ounces and north bighas. Besides the rates determined for agriculture lands for stamp duty basis are low, which is used by several people to register documents at stamp duty rates and the excess portion determined by market value is paid in cash. Such illegal-unaccounted cash moves in Co-operative banks conveniently, transactions broken down in smaller values (smurfing) and use of money mules to route the money away.<\/p>\n So the ingredients and process of this scheme is like an ideal script for money laundering. The issue needs to be addressed with an updated, land record directory preferably in online mode and linked to PAN or UID so that linkages are possible. Imagine with the PMJDY (Pradhan Mantri Jan Dhan Yojana) ; the accounts opened in rural areas; if credited with amounts for sale of agricultural items and negating cash payments, the significant impact it will have on our economy.<\/p>\n RBI & FIU IND must ensure that Co-operative banking is not used as a vehicle for such illicit money conversion. The most common explanation one hears when bulk cash gets deposited in bank account is agricultural revenue or sale of agricultural property. The Co-operative banking staff must be educated to follow proper due diligence in such matters.<\/p>\n With the noise in Parliament, I am hopeful that certain lacunae in the system would be corrected and hopefully we would be able to curb this area of laundering.<\/p>\n Sincerely,<\/p>\n Amit Retharekar (A proud farmer\u2019s son) <\/strong><\/p>\nWhat are the tax authorities doing about this?<\/strong><\/h3>\n
Co-operative banking and Agriculture<\/strong><\/h2>\n