The income-tax department may soon swoop down on participants in the stock market after a probe revealed that alleged tax evaders are parking money in companies listed on the BSE in order to avoid paying tax and hiding alleged “black” money.

The I-T department has collated information on the alleged dealings of individuals and companies through the securities transaction tax (STT) data submitted by NSE and BSE for 2013-14 and 2014-15, as per the documents available with DNA Money. STT returns contain the data of all sales, purchases and intra-day transactions of shares carried out on the stock exchange.

It is for the first time that the I-T department is conducting such a huge investigation in the stock market through the use of such data, and the results are revealing. The documents reveal case studies of individuals who have huge incomes but have allegedly never filed I-T returns.

For instance, there is an individual trader whose annual turnover is said to be Rs 2,800 crore. The report claims he puts his money in the stock market and has never filed any returns in his working life. It also talks about a woman who lives in the posh Jor Bagh area of New Delhi, who has traded more than Rs 250 crore in the stock market in 2014-15, but she has not filed any I-T returns either.

The bid to evade tax has also led to frauds being committed. Fraudulent PAN cards and PAN card numbers are allegedly being used by certain individuals and companies to dodge the taxman. Reports speak of a certain brokerage firm located in Sukhdev Vihar, in South Delhi, which has allegedly used bogus PAN numbers to trade in stocks for about Rs 2,000 crore.

According to the I-T department reports, during 2014-15, more than Rs 4,000 crore trading on BSE and nearly Rs 1,000 crore trading on NSE took place with the use of duplicate or bogus PAN card numbers.

Such allegedly fraudulent dealings have only benefited the stock market. The I-T department’s figures for 2014-15 show that the stock market’s turnover more than doubled from Rs 32 lakh crore to Rs 66 lakh crore. In the same period, the number of alleged and potential tax evaders soared about 150%.

Figures from the documents show that just 3% of total investors in the stock market have invested Rs 61 lakh crore in BSE-listed companies.

The documents also show that out of the 3% of high networth investors, about 47% have not filed I-T returns for 2014-15. In fact, these documents claim that investors have routed about Rs 30 lakh crore of funds through stock transactions in a year without disclosing their income. Breaking it down state-wise, one finds that the majority of tax evaders come from Maharashtra followed by Gujarat and Tamil Nadu.

The fact that such investors are depositing such a high amount of allegedly unaccounted for money — is enough cause for concern but what is even more alarming is that the number of investors has risen dramatically.

When contacted, BSE officials refused to comment on the issue of potential tax evaders using stock market companies to stash black money.

“Exchanges were being used for tax evasion. BSE has more than 5,700 companies, most of which are old and small. Sebi orders have proved that some of these companies were using the exchanges for tax evasion. BSE is taking several steps to prevent companies from undertaking such illegal activities,”Ashishkumar Chauhan, MD & CEO of BSE Ltd had told DNA Money in August 2015. BSE had then suspended more than 40 companies. It had also written to finance ministry to impose long-term capital gains tax that is currently exempt so that people do not use stock exchange mechanism for tax evasion.

When contacted, NSE responded to DNA Money’s queries in a statement. “After the levy of STT, issue with respect to tax deduction at source does not exist at all. In addition to the above, strict monitoring/surveillance is done if profits/losses are artificially generated through transactions on the exchange – if yes, investigation is done, report is sent to both Sebi and FIU for appropriate action. At least in NSE, we are very strict on such issues”.

Figures from these documents show that the number of investors has more than doubled from 47,625 in the 2013-14 to 1,21,423 in 2014-15. All these investors have been identified and have come under the taxman’s lens because they all have been involved in transactions ranging from Rs 2 crore to over Rs 10,000 crore on the market.

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