Skip to main content

Tax department's demand to disclose foreign bank accounts sends NRIs, expats into tizzy


As the July 31 deadline for filing tax return nears, many non-resident Indians (NRIs), expats, as well as foreigners with investments in private equity and hedge funds here are puzzled by the strange new demand from the Indian tax office asking them to disclose their bank accounts held across the world. 
Neither can they figure out the reason nor are they comfortable with sharing details of offshore accounts with the income-tax department which cannot tax earnings from such assetsTax practitioners and lawyers are inundated with phone calls from these individuals who fear non-disclosure could put them on the wrong side of Indian regulations. 
Leading law firm Khaitan & Co is among those that have drawn the attention of Central Board of Direct Taxes, the apex tax authority, to the additional reporting requirement that has crept into the tax return forms. With the government refusing to spell out whether it has been inadvertently or intentionally inserted into the forms, NRIs and foreigners who file tax returns in India are interpreting the matter in different ways. 
Some are paying tax but not filing return ā€” hoping the government would soon clear the fog; many are submitting returns without disclosing their global bank accounts ā€” preferring to revise the return later if the government sticks to the demand. 
Some are reporting just one foreign or Indian bank account to collect tax refund. And many are choosing not to upload their returns till the last day. 
ā€œThere have been several representations. This new requirement is not only extra but also devoid of any statutory provision. A compliance measure which does not have any logical explanation would not only lead to compliance indiscipline but would also discourage foreign investments into the country. The government should clarify soon so that tax returns are filed in time,ā€ said Bijal Ajinkya, partner at Khaitan & Co. 
Income of non-residents earned outside India is not taxable in India. In order to avoid tax on such overseas earnings, many Indians ā€” at least one member of most business families ā€” become NRIs by staying abroad for 182 days every year. However, the tax office probably suspects that such a law has been misused to legitimise black money parked abroad in tax haven banks. Untaxed money sent overseas through irregular hawala channels or part of export proceeds which are diverted to overseas bank accounts instead of bringing it back may have been laundered with NRIs claiming such funds are legitimate overseas earnings. 
FOREIGN INVESTORS IN PES IMPACTED 
While the I-T department may well have been driven by such suspicions, many fear endless queries by tax assessing officers. ā€œOne can upload the return even if you do not disclose foreign accounts but report one Indian bank account. Those doing this believe this will not have any consequences as the income credited in a foreign account is not taxed here. However, foreigners who invest in India through alternative investment funds (private equity or hedge funds) or other permissible routes and whose income is liable to attract income tax in India, will have to disclose their bank accounts in different parts of the world. If they do not have any account in India, then they cannot upload return without disclosing their foreign bank account,ā€ said senior chartered accountant Dilip Lakhani. 
According to Mitil Chokshi, senior partner at Chokshi & Chokshi, since AIFs of category I and II have ā€˜passthroughā€™ income, which means it passes over to the ultimate investor, any income therefrom is chargeable to income tax in the hands of the investor. If the said investor is an NRI or foreigner, he should be required to file tax return in India. 
More than 50 NRI clients of Rajesh M Kayal, a Mumbai-based chartered accountant, are unwilling to share their overseas bank account details. ā€œThis disclosure required in tax return is inconsistent with tax provision,ā€ said Kayal. 
Two years ago, the government directed all resident Indians to disclose their offshore bank accounts ā€” a fallout of the glare on tax havens and data leaks that revealed hundreds of Indians with undisclosed bank accounts abroad. 
But NRIs were not covered by this directive. Now, the questions are: Will this change? Can it be pushed through without changing the law? 
The Economic Times, New Delhi, 24th July 2017

Comments

Popular posts from this blog

Budget: Startup sector gets new Fund of Funds, FM to allocate Rs 10K cr

  The Indian startup sector received a boost with Finance Minister Nirmala Sitharaman announcing the establishment of a new fund of funds (FoF) in the Budget 2025. The minister unveiled a fresh FoF with an expanded scope, allocating Rs 10,000 crore. The initial fund of funds announced by the government with an investment of Rs 10,000 crore successfully catalysed commitments worth Rs 91,000 crore, the minister said.   ā€œThe renewal of the Rs 10,000 crore commitment to the Fund of Funds for alternative investment funds (AIFs) is a significant step forward for the Indian startup and investment ecosystem. The initial Rs 10,000 crore commitment catalysed Rs 91,000 crore in investments, and I fully expect this fresh infusion to attract an additional Rs 1 lakh to Rs 1.5 lakh crore in capital,ā€ said Anirudh Damani, managing partner, Artha Venture Funds.   Damani further added that this initiative will provide much-needed growth capital to early-stage startups, further strengthenin...

GST collection for November rises by 8.5% to Rs.1.82 trillion

  New Delhi: Driven by festive demand, the Goods and Services Tax (GST) collections for the Union and state governments climbed to Rs.1.82 trillion in November, marking an 8.5% year-on-year growth, according to official data released on Sunday. Sequentially, however, the latest collection figures are lower than the Rs.1.87 trillion reported in October, which was the second highest reported so far since the new indirect tax regime was introduced in 2017. The highest-ever GST collection of Rs.2.1 trillion was reported in April. The consumption tax figures highlight the positive impact of the recent festive season on goods purchases, providing a much-needed boost the industry had been anticipating. The uptick in GST collections driven by festive demand had been anticipated by policymakers, who remain optimistic about sustained growth in rural consumption and an improvement in urban demand. The Ministry of Finance, in its latest monthly economic review released last week, stated that I...