Even those who have declared overseas assets in their Income Tax Returns (ITRs) have received notices due to a mismatch between the information available with the tax department and ITRs
Foreign investments of Indian residents have come under the radar of the income tax authorities to prevent leakage of taxes. However, recently even those who have declared overseas assets in their Income Tax Returns (ITRs) have received notices due to a mismatch between the information available with the tax department and ITRs.
“Many taxpayers, who have adhered to the norms by diligently declaring their overseas investments in their income tax returns, are bewildered on receiving the tax notices. It not only creates undue mental pressure but also leads to wastage of time and resources, with individuals having to engage in correspondence and coordination with the Income Tax department to rectify the issue for no non-disclosure on their part,” said Bijal Ajinkya, Partner, Khaitan & Co.
Investments abroad by resident Indians are made through Liberalised Remittance (LRS) introduced by the Reserve Bank of India. It permits Indian residents to freely remit up to $250,000 per financial year for any investments or payments done abroad. Any income earned from these investments becomes taxable under the Income Tax Act and needs to be declared in the tax return.
“The current system of tax department may not cover whole landscape of possibilities of mismatch between the information available with the tax department and ITRs. Like, there could be a possibility that the individuals may have made investment in 2000 or 2010 and the tax department data does not have any data about such investment. However, under the Information Exchange Agreement, they may have received information about such investments,” said Amit Singhania, Founder of Areete Law Offices.
It may also be noted that earlier in 2000 or 2010, there was no requirement to disclose offshore assets. Another example could be a person has made the investment in offshore entity and thereafter gifted the same to his relatives. Thats the reason he has not disclosed the information in ITR. Separately, there is still a possibility that the even though the information regarding investment and ITR are matched but the tax department may have suspicion regarding bonafide source of funds considering the quantum of income disclosed in ITR, explained Singhania.
However, discrepancies in the information mapping system of the Income Tax department have led to the present scenario where even some compliant taxpayers are receiving tax notices. The current issue emphasizes the urgent requirement for streamlining the information management system of the Income Tax Department. The tax authorities must ensure accurate mapping and integration of data declared by taxpayers and that received from international agencies. This would not only help in avoiding unnecessary harassment of tax-compliant individuals but also aid in the accurate identification of those flouting tax norms, added Ajinkya.
It is not only resident Indians investing abroad but NRI’s settled abroad who are also getting these tax notices for investments done in India asking them to disclose foreign assets when there is no requirement for the same. “There is a need to check these random notices and swiftly address these system glitches and reassure the taxpayers. Effective streamlining of backend operations and better information mapping can help in reducing these issues, thereby bringing ease of tax compliance,” said Ajinkya.
Source: https://www.businesstoday.in/personal-finance/tax/story/income-tax-notices-sent-out-for-overseas-investments-416329-2024-02-06
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