Here’s what Next on Modi govt’s black money hit list

For decades, many Indians have escaped tax and legitimised their money stashed abroad by staying 182 days out of the country every year and declaring themselves as ‘non-resident’.

The status of a non-resident Indian, or NRI, allowed them to claim such funds lying in offshore bank accounts as lawful income earned abroad. From now on, this won’t be easy.

A few days ago, income-tax authorities have added a new provision in the tax return form (ITR2) which will require all non-residents to disclose details of their bank accounts outside India. Most NRIs, even those who have been away for years, file tax return in India to cover their income from stocks, properties and fixed income instruments like bank deposits and bonds.

Beginning this year, they will have to share with the tax office the account numbers of their overseas bank accounts, name of the banks, countries where the bank offices are located as well as the Swift codes and International Bank Account Numbers (IBAN). Swift codes help in identifying banks and are used for cross-border wire transfer of funds between banks while IBAN is an extra number – over and above the usual bank account numbers – that come handy for making or receiving international payments.
“But this could also have some unintended consequences. For instance, many foreigners or non-residents who are working in India may not be willing to share their bank accounts in their home countries. The (tax return) form has been amended without any change of rules or notification. Also, why should Indian tax department seek details of bank accounts whose interest income it cannot tax?,” said senior chartered accountant Dilip Lakhani. Till now only resident Indians were required to disclose overseas bank accounts in their tax returns.

While NRI taxpayers can successfully upload online tax return form by holding back information on foreign bank accounts, they run the risk of being pulled up later if the Indian tax office stumbles upon any information about such funds.
Such a possibility is less remote now with many tax havens agreeing to share data.

At that stage, non-disclosure of such information could even boil over from the I-T department to the Enforcement Directorate (ED) which is empowered to invoke far harsher laws that deal with money-laundering.

The new clause has been incorporated amid a widely-shared perception that many Indians have moved money from jurisdictions like Switzerland to newly opened bank accounts in destinations such as Dubai, Singapore and Hong Kong.
“They may have multiple bank accounts. Going by plain reading of ITR2 form, an NRI would be obliged to provide all the bank accounts, and an assessing officer will have the right to ask any question therefrom which have a possible and potential tax claim in India.

However, the Income Tax Act clearly places taxability based on residential status of an assessee. Since NRIs are subjected to tax claim only on income earned in India, some could take an alternative view on the new provision as it is not backed by a circular. It would mean, disclosure of bank account in India or outside for operative purpose like tax payments and processing refund,” said Mitil Chokshi, senior partner at Chokshi & Chokshi.

Since black money and secret Swiss accounts have emerged as a political issue in the past few years, most tax practitioners believe a disclosure rule of this nature may be aimed at tracing untaxed funds. Indeed, last year, many NRIs were asked by ED to explain their source of funds. Inability to explain assets and fund movements is a violation of the Foreign Exchange Management Act and exposes a person to penalty. “As citizens they are obliged to provide information though they are not a resident Indian from Tax or FEMA perspective.

An individual has to respond to any question raised by any regulatory authority be it Tax, FEMA, ROC etc. But while such queries cannot be ignored, they have to be deftly replied,” said Chokshi.

Source:ET

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