CA Pratik Anand
Foreign Account holders beware; the Income Tax department has started issuing notices to persons having foreign assets about the disclosures of such assets and income accruing from them in the Indian IT Return.
As part of the Government’s initiative on cracking the whip on black money and as part of the agreement with the US govt. under Foreign Account Tax Compliance Act (FATCA), the IT Department is issuing notices to foreign asset holders seeking information relating to their foreign assets.
Ques: What is FATCA?
Ans: FATCA is a US Law enacted in 2010 by US Congress to target non-compliance by U.S. taxpayers using foreign accounts. FATCA requires foreign financial institutions (FFIs) to report to the IRS information about financial accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest.
Ques: How does the Indian Income Tax department get information about foreign assets under FATCA?
Ans: As part of the signing of Inter-Governmental agreement under FATCA between India & USA, foreign financial institutions (FFIs) in India are required to report tax information about US account holders to the Indian Government which will, in turn, relay that information to the US Internal Revenue Service (IRS).
Similarly, the US IRS will also provide similar information about Indian citizens having any accounts or assets in the US.
Such information can also be asked as part of the Double Taxation Avoidance Agreements (DTAA) between India and other countries.
Ques: Are there any rules enacted by the Indian Government under FATCA?
Ans: The Indian Government enacted rules relating to FATCA reporting in India. The rules have been divided into three specific segments which deal with various aspects of the FATCA reporting regime as follows:
· Rule 114F – Definitions of the various terms referred to in the rules;
· Rule 114G – Information to be maintained and reported; and
· Rule 114H – Due diligence requirement.
Ques: What information is being asked by the IT department?
Ans: The Income Tax Deptt. is basically asking for information about the foreign assets of Indian citizens and whether the income derived from such assets has been shown in the Income Tax Return in India.
Some of the information being asked in the notices issued are:
- Details regarding the monies credited in the foreign bank accounts of individuals.
- Whether the individual has filed return in India for particular financial years for which the information is being sought? Copies of returns to be filed with the department.
- Whether the monies credited in the foreign bank accounts has been shown as income in the Indian Income Tax return and whether tax has been paid on such income.
- Whether the foreign assets have been declared in the IT Return in the schedule of foreign assets (Schedule FA).
- Residential status of the individual is being asked and enquired about.
- If the individual has treated the amounts credited in the foreign bank accounts as non-taxable, specific reasons are being asked for treating the amount credited as non-taxable in India.
- Details can also be asked about foreign assets other than foreign bank accounts such as holding any property outside India and the income derived from such property, financial interests in any foreign entity and income earned from such entity, investments in foreign stock exchanges and financial instruments abroad.
Ques: Who are under the purview of these inter-governmental agreements?
Ans: As part of FATCA, the US IRS has to report about Indian citizens having any accounts or assets in the US. Therefore, under FATCA, these notices can be issued to Indian citizens whether resident or non-resident having assets outside India.
Ques: Who has to be more careful about these notices?
Ans: This provision is more relevant for resident Indians having assets in foreign countries since any income earned from such foreign assets has to be shown in the Income Tax return as global income is taxable in case of persons residents in India.
Also, the schedule FA i.e schedule of foreign assets in the income tax return has to be filled by only resident assesses. It need not be filled up by a not ordinarily resident and a non-resident.
Ques: What are the particulars about foreign assets that are to be disclosed in the return?
Ans: Following particulars relating to overseas assets is to be filled.
- Foreign Bank Accounts: Name and address of the Bank, location, the account holders name and the peak balance maintained in the bank during the year after converting the same into Indian currency.
- Financial Interest in an Entity:Name, Address and nature of entity such as firm, company, trust where the interest is held and the total investment held at cost during the year after converting it into Indian currency.
- Immovable Property and other Asset: location of the property along with total investment.
- Details of any account located outside India in which the assessee has signing authority. Along with address of the institution where the account is held.
Ques: What are the details of Foreign Income to be shown in the Income Tax Return?
Ans: In case of resident Individuals, the global income is taxable in India. The Schedule FSI to be filled by such taxpayers. The details to be given are:
- Fill the details of income (with the breakup of such income from abroad under the heads of income from salary,house property ) forming part of total income, accruing or arising outside India.
- Tax paid outside india under various heads of income.
- Relevant article of DTAA if tax relief is claimed.
- The Tax Payer Identification Number (TIN) of the assessee in the country where tax has been paid is to be filled up. In case TIN has not been allotted in that country, then, passport number should be mentioned.
Ques: What are the other points to be kept in mind?
Ans: A resident individual who holds assets abroad is also required to file his I-T return even if he does not have any income in India.
While owning an asset does not trigger any tax liability, the tax department may seek information on the source of funds for acquiring these assets and whether these have been subject to tax. Since this is a mandatory requirement, non-provision of details may be treated as concealment and trigger penal consequences. The above disclosures may help authorities to track and question unaccounted overseas money/assets. Failure to disclosure of such overseas assets/income will amount to wilful concealment and may lead to penalty and prosecution against the assessee.
(The author is a CA in practice at Delhi and can be contacted at: E-mail: email@example.com, Mobile: +91-9953199493)