Rich individuals are receiving summons from the investigation wing of the Income Tax Department, which is probing their non-resident status.
The subpoenas are largely based on information obtained from jurisdictions such as Singapore, Switzerland, the Cayman Islands and the British Virgin Islands, involving Indians who allegedly control certain structures or serve as decision-makers in certain entities.
Indian authorities are receiving vast amounts of data from various jurisdictions linking Indians in various capacities to certain offshore interests such as trusts, corporate entities and bank accounts. This triggered a flood of subpoenas from tax authorities seeking explanations and more information about offshore interests. ” said Ashish Mehta, partner at Khaitan & Co.
He added that the questionnaire sent with the subpoena requires recipients to prove their non-resident status, if applicable.
The department requires tax returns and passport and immigration details from the time the assets were purchased, which in some cases can go back 30 or 40 years.
Individuals must determine their residency status for each fiscal year. If they become non-resident in any financial year, they will have to provide evidence of their stay outside India beyond the threshold, including details such as address.
“Many high-net-worth individuals who have moved abroad for work or permanently have started filing tax returns as non-residents but missed updating their records. This is relevant compliance to ensure tax authorities have the details they need to determine their status. information,” said Raashi Shah, partner at Illume Advisory.
A subpoena is a preliminary stage of an investigation, giving an individual the opportunity to explain their case and provide facts to allay the concerns of the tax authorities.
Documents required to prove residency include passports, rental agreements, employment contracts, bank statements and utility bills, Shah said. She added that questions will be asked about travel history, employment and residence status in India and abroad.
Mehta said tax returns of non-residents can be submitted along with a copy of their passport proving their stay in India. In some cases, the tax authorities may cross-verify residence in India by seeking information from the Immigration Department.
Based on the submission, the IT department may accept the non-resident status of the individual and close the file or further investigate whether there has been a case of non-reporting or tax evasion. Thereafter, the department can invoke the Black Money (Undisclosed Foreign Income and Assets) and Taxation Act, 2015 against offshore income or initiate income tax proceedings if the tax evasion involves Indian income.
Proceedings can last a year or more after a subpoena.
For a resident taxpayer, all income is taxable in India, whether earned or accumulated outside India.
For non-residents, all income arising or arising outside India is not taxable in India.
A person is considered a non-resident if he or she stays in India for less than 120 days.
Citizens and PIOs who stay in India for 120-181 days and whose income is less than Rs 15 lakh and whose income is not from foreign sources are “residents” but not “ordinary residents”. Others staying that long are non-residents.
An Indian citizen who is not liable to tax in any other country will be considered a resident of India if his total income (other than from foreign sources) in a financial year exceeds Rs 15 lakh.