At home with reporting global assets?

Divya Baweja Preeti Gupta | Updated on March 10, 2018

Indian tax residents whose income from their foreign assets is taxable in India are now under the scanner.

The due date for filing annual tax returns is fast approaching, so it’s time to acquaint ourselves with the additional reporting requirements introduced by Budget 2012.

Finance Act 2012 made it mandatory for an Indian tax resident (irrespective of nationality) to report assets outside India in the tax return. This does not apply to those regarded as ‘not ordinarily resident’ in India (NOR) — an individual present in India for less than 730 days over the last seven tax years, or who has not been a tax resident in India for nine out of the last 10 tax years.

Individuals qualifying as tax residents and not NOR are normally taxable on their global income under the domestic tax law. They may also be simultaneously taxable in the country where the income-generating assets are located. India has entered into tax treaties with several countries to avert such double taxation.

Tax residents whose income from foreign assets is taxable here are now under the scanner. Failure to disclose such assets, and the income from them, will amount to wilful concealment, leading to penalty. Such cases can be reopened for tax assessment for up to 16 years. Moreover, even persons who claim that such income is not taxable in India due to tax treaty will now be under the scanner, and should demonstrate their eligibility for such claims.

On the downside, even tax residents with minimal or no income from foreign assets should file returns, that too electronically. This could prove cumbersome and needless. One category of individuals feeling this burden could be the spouses or major children of foreign nationals moving to India with family for employment. They should file returns to avoid unnecessary hassles of tax enquiries.

A simplified tax return form called SAHAJ is prescribed for those with income from salary, one house property and other sources (interest income). However, tax residents with foreign assets cannot file through SAHAJ even if they have only salary and interest income taxable in India. They have to use other prescribed forms. Six categories of global assets have been identified for reporting:

foreign bank accounts;

financial interest in any entity;

immovable property;

other assets in the nature of investments (and not personal effects);

other accounts for which an individual is a signing authority; and

trusts created under foreign laws in which an individual is trustee.

The information to be provided includes country name, country code, bank account number, peak balance of bank account, name and address of the bank/ entity/ trust, nature of the entity in which financial interest is held, total investment held in immovable property or other assets, name of the account holder, name and address of other trustees, and settler and beneficiaries. The value for reporting should be in rupees, applying the telegraphic transfer buying rate adopted by State Bank of India as on the date of peak investment/ balance.

Though it is a challenge for tax residents to gather such information, this will give the revenue authorities an insight into the global assets held by tax residents outside India.

Divya Baweja is Senior Director, Deloitte Touche Tohmatsu India Pvt Ltd, and Preeti Gupta is Manager, Deloitte Haskins & Sells

Published on May 26, 2013

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