Government likely to put cap on number of accounts on persons have multiple bank accounts
Service providers who have multiple undisclosed accounts at different banks are under the scrutiny of the tax authorities as the government believes they are used as a tool for tax evasion in certain cases.
There is no law that restricts a person to open multiple bank accounts. But, the government plans to find out shell company operatives, who are reportedly using dummy current accounts to launder money.
Siphoning of funds takes place when funds borrowed from financial institutions are utilized for purposes unrelated to the operations of the borrower, to the detriment of the financial health of the entity or of the lender.
Diversion of funds, on the other hand, can include any one of the following situations:
- Use of short-term working capital funds for long-term commitments not in conformity with the terms of sanction
- Using borrowed funds for creation of assets other than those for which the loan was sanctioned
- Transferring funds to group companies
- Investment in other companies by acquiring shares without the approval of lenders
- Shortage in the usage of funds as compared to the amounts disbursed/ drawn, with the difference not being accounted for
In 2015, The Central Board of Direct Taxes (CBDT) has issued guidelines for compounding of offences under Income Tax Act, 1961/Wealth Tax Act, 1957, in cases of persons holding undisclosed foreign bank accounts/assets.
Directive by RBI
- Reserve Bank of India (RBI) has recognized the fact that a large number of frauds are perpetrated in banks mainly through opening of accounts in fictitious names, irregular payment of cheques, manipulation of accounts and unauthorized operations in accounts.
- Considering the fact that opening of an account is the first entry point for any person to become a customer of the bank, utmost vigilance in opening of accounts and operations in the accounts is called for.
- Even the legal protection under the Negotiable Instruments Act, 1881 governs payment and collection of negotiable instruments. The Act provides certain rights, liabilities (obligations) and protections to the issuers/drawers, payees, endorsees, drawees, collecting banks and paying/drawee banks. This will be available, only if the bank makes the payment or receives payment of a cheque/draft payable to order in due course.
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