An amendment to the Income Tax Act, 1961, proposed by Finance Minister Nirmala Sitharaman in her maiden Union Budget speech could allow the Centre to recover income-tax dues from defaulters who have become residents of other countries.

When the Finance Bill is finally passed by Parliament, the government can request officials in foreign countries to recover income-tax from defaulters under Indian tax laws, if India has a mutual agreement with the income-tax authorities of the country where the tax defaulter is a resident.

The earlier law (Section 228A of the Income Tax Act) impaired the ability of income-tax officials to recover tax from a person who was held to be a defaulter under the Income Tax Act. The recovery of tax was incumbent on the income-tax authorities identifying a property overseas against which they could recover taxes from these defaulters. Now, even if the Indian tax authorities have not identified a property of the tax defaulter in the foreign country, they can proceed to recover tax dues with the help of foreign tax authorities.

Tax experts say that the new amendment to the law could also help the government recover tax dues from fugitives who have taken shelter in another country to avoid paying income tax.

“If these fugitives become a resident of a foreign country, then tax officials can make a request to that country to recover dues on India’s behalf,” says Preeti Khurana, Chief Editor at ClearTax. Before this proposed amendment, income-tax officials could only request their counterparts to recover dues when they had identified a property of the income-tax defaulter. Now, if a person who has been declared a tax defaulter has multiple properties in a country with which India has a mutual agreement, then the Indian authorities can request their counterparts to recover Indian tax dues from the person.

Tax-recovery certificate

The prerequisite under the proposed amendment for such an action is declaring the person an income-tax defaulter.

Then, the officer-in-charge of recovering the taxes or a tax recovery officer (TRO) must send a tax-recovery certificate to the Central Board of Direct Taxes stating the amount to be recovered.

This amendment puts similar obligations on India with respect to recovery of taxes due in another country from a person who is a resident under India’s income-tax laws. “To put it simply, where a defaulting person is resident in India or other country, the provision shall now also empower the relevant tax recovery officer having jurisdiction over that person, to recover tax against his properties (irrespective of whether details of property are available or not) in respective countries,” said Anupam Jain, partner at Nangia Advisors (Anderson Global).

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