According to the estimates of the Income Tax department, the evasion is to the tune of Rs 500 crore in the past 10 years alone -- the period they are charging the MNCs for, in retrospective effect. Along with the income tax evaded, the MNCs will have to pay interest on the amount.

The foreign companies, according to sources, did not disclose the real salaries and the perquisites of the foreign expatriates working for them in India. The expatriates were paying tax only on the relatively small amount they were being paid in India. The larger chunk of their salaries were paid in their native countries, and not disclosed to the income tax department.

For example, if a Japanese expatriate was being paid Rs one lakh in India, he was paid five times theamount in Japan. And he was paying income tax only on Rs one lakh paid in India. Then there were perks like house rent allowance (HRA), car, servants, medical, leave travel allowance (LTA), children's school fee and even memberships to expensive clubs.

``There is a limit even to the perquisites. There were cases where the companies were paying $ 10,000 per year per child as fee for American School. One Korean company was paying a small part of the salary here, and most of it in Korea and even the United States. And all of this was going undisclosed and untaxed,'' an IT officer said.

Sources said that the IT department initially surveyed and inspected around 35 MNCs, of which most were Japanese followed by Korean and European. The surveys revealed gross evasion of income tax by the companies. Notices were served on the companies. With the pattern that emerged, the IT department was certain that almost all multi-nationals were doing the same. There are over 100 Japanese, 40 Korean and 50 companies of othercountries doing business in India.

The Japanese, rattled by the raids -- politely called ``surveys'' by the IT department -- were the first to respond. The Japanese Chamber of Commerce and Industry (JCCI) contacted the IT department on November 30, requesting them to stop the surveys and in return, offered to voluntarily disclose the complete global income of their expatriate employees and pay the tax on the amount. The JCCI promised to revise the TDS (Tax Deducted at Source) returns for 78 Japanese companies.

Assured by the ``cooperation'' showed by the Japanese, the IT department had stopped the surveys and inspections of their companies. However, surveys of other MNCs were still on. The IT officials hope that companies of other countries would respond similarly and come forward voluntarily.

Countries other than Japan did not have a Chamber to represent the interest of their companies in India. The IT department said that companies of other countries could come forward through their respectiveAmbassadors. ``It will be in their own benefit. They will have a better case before the government for exemption from penalty and prosecution,'' an official said.

The JCCI had already petitioned the Central Board of Direct Taxes (CBDT), asking for a waiver of penalty and prosecution of Japanese companies. The penalty charged by the IT department in normal course is 100 per cent of the evasion plus the compounding fee. Sources said that the IT department was to send its report to CBDT, and since the Japanese were cooperating and had defaulted for the first time, they were likely to get a waiver, though the final decision would be taken by the CBDT, probably by the Finance Minister himself.

The companies found to be evading tax include Japan Air Lines, Suzuki, LG, Daewoo, Hitachi, Ericcson, Philips, Alcatel, Braun, Hyundai, Fiat, Motorola, Sony, Siemens and Sansui.