The enactment of the Black Cash Act in 2015 instituted a notable makeover in earnings tax returns (ITR) to envelop intensive disclosures capturing particulars of international belongings and earnings, making the intent loud and clear.
The I-T division, with an goal to discourage individuals from evading tax or parking funds overseas and allow repatriation of funds stashed overseas, has designed an efficacious reporting mechanism within the ITR itself, for monitoring offshore earnings and belongings of a resident taxpayer. The spree of modifications to ITR kinds has on the one hand assured finer particulars of taxpayer’s belongings and earnings, and alternatively given heebie-jeebies to taxpayers.
A resident taxpayer holding international belongings or international curiosity at any time in the course of the related accounting interval must essentially disclose the identical within the ITR type. Due to this fact, a international asset or curiosity held even for a single day in the course of the 12 months triggers the reporting requirement. The stipulation applies solely to ‘odd residents’ and therefore, is an enormous sigh of reduction for ‘not ordinarily residents’ and ‘non-residents’. The earnings tax legal guidelines make ITR submitting obligatory for particular person taxpayers who could albeit not be required to file ITR resulting from earnings being beneath primary exemption restrict, if one is a ‘helpful proprietor’ or is a ‘beneficiary’ of any international asset or international monetary curiosity.
The ITR earmarks a separate part ‘Schedule FA’ to seize particulars of doable variants of international belongings, international pursuits and corresponding earnings derived therefrom by a resident taxpayer. The Schedule, nevertheless, doesn’t characteristic in ITR 1 and ITR 4, which may land sure taxpayers in a quandary. As an example, a person having solely wage earnings (no more than ₹50 lakh) could also be of the opinion that he’s compliant by submitting ITR 1 solely to find that the ITR type chosen may very well be incorrect if he holds international belongings. Thus, a taxpayer holding international belongings ought to become familiar with and be diligent whereas choosing the relevant ITR type, to keep away from mistaken return type, being seen as submitting non-compliance.
Schedule FA deviates from the ‘monetary 12 months’ idea and makes references to belongings held in the course of the accounting interval, to handle issues the place international jurisdictions internet hosting the asset/account undertake a FY apart from the India FY (i.e. 1 April to 31 March).
The Schedule is designed in a complete method and solicits particulars of international depository accounts and international custodial accounts held by a taxpayer together with peak balances in the course of the interval. Investments in international fairness and debt, abroad immovable property are some sides that will come to at least one’s thoughts impromptu and type a part of the disclosure requirement.
Monetary curiosity in a international entity whether or not as an agent, nominee or legal professional can also be embraced by the Schedule. Having a signing authority in a international checking account additionally topics a resident assessee to such reporting.
A vital side is conversion of worth of international belongings and earnings into the reporting foreign money (INR). Values in Schedule FA are required to be disclosed after changing them into Indian foreign money by making use of the “SBI telegraphic switch shopping for fee” of international foreign money as on the date of peak stability within the account or on date of funding or deadline of accounting interval.
Resulting from its intensive nature, taxpayers may are likely to miss minute disclosures in Schedule FA, making it incomplete and this may very well be seen as a non-disclosure, although unintentional. The rigours of penal penalties which once more emanate from the Black Cash Act are far reaching and embrace a tax legal responsibility at flat fee of 30% of the worth of undisclosed international asset or earnings and moreover, a penalty of 3 times of the tax so computed.
Disclosure in Schedule FA doesn’t absolve the taxpayer from encapsulating identical particulars below different sections of the ITR, even at the price of duplication. As an example, shares held in an unlisted international firm must be individually disclosed within the ‘Basic’ part of ITR type as effectively. People misapprehend such disclosure requirement which can lead to inconsistencies in reporting. As well as, the place the entire earnings of a person exceeds ₹50 lakh, disclosure of international belongings in Schedule AL wants reiteration. The multitudinous reporting necessities for international belongings and earnings warrant not only a one-time knowledge collation exercise on the time of return submitting however requires the taxpayer to be meticulous in monitoring variations of their international asset and earnings profile all year long. Although painstaking, no side will be dominated out as trivial and diligence is the important thing to insulate from unintended punitive penalties.
Sandeep Jhunjhunwala is associate, Nangia Andersen LLP. This column was co-authored by Amita Jivrajani and Abhishek Mehta.
Supply: Live Mint