|Chennai||Rs. 24020.00 (-0.17%)|
|Mumbai||Rs. 25020.00 (0.28%)|
|Delhi||Rs. 24450.00 (0%)|
|Kolkata||Rs. 24600.00 (-0.32%)|
|Kerala||Rs. 24050.00 (0%)|
|Bangalore||Rs. 24160.00 (-0.17%)|
|Hyderabad||Rs. 24030.00 (-0.12%)|
Certain provisions in the Union Budget 2012-13 regarding taxation of foreign assets have come to worry middle-aged Harsha Mehta. Three years ago, she had shifted to the United States to stay with her son.
Mehta has always been diligent about record-keeping of their finances, but the 57-year-old resident of New Jersey is finding it difficult to understand the changes in guidelines in both the countries and the degree of their impact on her finance.
For instance, two years ago, Mehta had learnt she needed to pay tax on the income she earned in America. Now, the just-presented Budget by the India government has made it mandatory for individuals to declare their foreign income, else they would be deemed to have escaped assessment. The rule comes into effect from July 1.
Though Mehta has always declared her assets (bank deposits worth Rs 1.5 lakh and co-investor in some stocks with her son), she was quick to call her chartered accountant to understand the implications.
Experts are clear on the matter. Pranay Bhatia, associate partner (direct tax) at Economic Laws Practice, explains these laws are only to tap black money, not to hassle Indians residing abroad. "Of course, if Mehta had not declared her assets knowingly or unknowingly, she would have had to do so immediately," he adds.
The new norm would have been even more relevant for Mehta had she (and people like her) been visiting India for 182 days or more a year. In that case, she would have become a resident and would remain so for the next two years, thus requiring her to file returns and declare assets/earnings from a foreign country.
The amendment is proposed for Section 147 of the Income Tax Act, where "income shall be deemed to have escaped assessment where a person is found to have any asset (including financial interest in any entity) located outside India". Till now, this law was applicable only to expatriate Indians. Now it is being extended to residents as well. Hence, NRIs who visit India for more than six months (and become residents of their mother country) will come under the ambit of this law.
Homi Mistry, partner at Deloitte, Haskins and Sells, says the changed practice will also be applicable to expatriates who shift to India with family for work. "They will have to declare their assets in their home country (if they stay in India for more than six months)," he adds.
This, experts feel, should be factored in for expatriates. It should not be a mandate for them, as it involves "a lot of administrative issue", one of them says. Reason: these individuals will have many financial assets in their home country.
So, suppose you have a relative residing outside India. And, that person has investments abroad. Let's assume this relative decides to make you the nominee for some of his/her investments. Then, you will be deemed to have financial assets outside India or as the Budget memorandum calls it financial interest. As a result, you will be required to declare these assets.
Tax experts say there could be cases where one doesn't even know that one has been made the nominee. Then, the person could be pulled up for not declaring foreign assets. Says a chartered accountant: "This often happens in case the nominee is a minor or in business families where the wife is made the nominee."
Also, be careful if you had financial assets or were a nominee for someone's investments abroad. For, even if the assets do not exist now, you could be asked for details of such assets as the time limit for issuance of notice for reopening an assessment on account of income escaping assessment has been revised to 16 years, as against six years now.
Lastly, even if you have signatory powers in someone else's foreign assets, you could be asked to declare the assets and the powers you have. Explains Bhatia of Economic Laws Practice: "We've often seen that NRIs make a trust for their minor children and often give the signatory powers to either parents or godfather/ godmother of the children. Here, the signatory authority runs the risk of getting a tax notice for not declaring details of such trusts."