Khobragade fallout: US embassy evaded tax worth crores?

Thanks to the Devyani Khobragade affair, which has led to intense scrutiny of what American diplomats and their staff and family may be up to in India, the authorities are looking at the prospect of uncovering what could be a multi-crore tax evasion.

Sources told Firstpost that the United States embassy in New Delhi may have been aware of the violation of Indian tax laws and other things for years, possibly decades.

The eye of the storm promises to be the American Embassy School, also famous for its abbreviation AES, in New Delhi’s posh Chanakyapuri area.

 Khobragade fallout: US embassy evaded tax worth crores?

In diplomatic war with India. AFP

The school, established way back in 1952, has a staff of hundreds, including a faculty of around 150 teachers. Last month, India had asked the US embassy to provide details about people working in American schools all over the country and other US government facilities to determine if they had permission to do so and if they were paying taxes that are mandatory under Indian law.

A catch point in the tricky Indian government's missive to the Americans was that diplomats' spouses who take up work in schools or other embassy facilities are supposed to inform the host country.

India is well aware of the fact the American diplomats stationed in India have routinely been violating the Indian laws. But the Indian demand from the Americans, made in the wake of the nanny mess in the Devyani incident, has pushed the Americans into the corner as New Delhi is no longer willing to turn a blind eye to such violations any more.

Firstpost has learnt that the US diplomats in New Delhi are in jitters as they race against the ticking clock to furnish details. They know that they have eaten more than they could chew as they never realised that India would go to this extent in the Devyani case.

The American embassy in New Delhi sent two internal emails today to its staffers, cautioning them to be ready to face imminent adverse media publicity.

Top American diplomats held series of meetings through the day today preparing to deal with the imminent crisis. At these meetings, sources said, the staffers were even told to be even prepared to the closure of the school.

Indian government sources told this writer thus: "Tax evasion from a school (read AES) which is charging so much from the students is a willful deceit of Indian laws."

The American Embassy School must be among the most expensive schools in the country where lots of rich Indians send their wards to in the hope of securing a better future for them in the US years later.

See the AES fee structure. A pre-Kindergarten child is charged $10,310 annually in tuition fee, a Grade 6-8 student is charged $21,690 annually and a grade 11-12 student is charged $22,390. This is only tuition fees.

There are other fees like the application fee of $300 (which is non-refundable), a registration fee (KG-Grade 12) of $11,110, registration fee (pre-K) of $ 5,110 and English as an additional language (EAL) support fee of $ 2500. Then there is a lunch fee of $550.

Over and above all this, there is a bus fee too which ranges from $1,170 to 1,800, depending on the distance.

Sources have told this writer that what has stumped the Americans is that many of their diplomats have their spouses working in the American School or elsewhere but they have not been putting these incomes on record.

Moreover, when the AES started, the Indian government had given certain leverages and concessions to the Americans, including exempting the school and a particular number of its faculty members from income tax. The problem is that the Americans have unilaterally elongated the tax-exemption list sizably.

There are many staffers in the US embassy in New Delhi, mostly Americans, who have been evading taxes as per Indian laws for years for the simple reason that Indian government has been turning a blind eye to this malpractice. However, the Devyani episode has forced India to call the Americans’ bluff.

The Americans were at the wrong end of the stick several years ago when the American School in Mumbai was found to be indulging in the same malpractices and as a result of the intervention of the Bombay High Court the Americans were made to shell out huge money (with arrears) to India.

The current scenario looks the same. The Americans are all set to be embarrassed as one of their major media flagships—New York Times—is expected to come up with a damning disclosure on the same lines.

The writer is a Firstpost columnist and a strategic analyst who tweets @Kishkindha.

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Updated Date: Jan 16, 2014 14:15:42 IST