Non-residents, not-ordinarily residents in tax tangle

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Tax experts have questioned the mandatory requirement for disclosure of unlisted equity shares in foreign companies by non-residents and not-ordinarily residents in their income tax returns. “Schedule FA (foreign assets) and Schedule AL (asset and liability) in the income tax return clearly exempts non-residents and not-ordinarily residents from reporting assets and investments located outside India. Then why must they report investments in unlisted equity shares of foreign companies?” questioned Amitabh Singh, a senior tax advisor. An August 8 circular from the Central Board of Direct Taxes (CBDT) said that such details needed to be filed. “The August 8 circular came too late in the day, very little time for the expatriates to gather requested information considering they have meager access to records back home. Tuesday’s circular is conspicuously silent on this issue,” Singh said. In fact, he pointed out that the August 8 circular contradicts itself, saying that the details are required only in respect of equity shares in unlisted entities registered under the Companies Act. The apex body for direct taxes in the Tuesday’s circular further clarified issues over return filing by non-residents. It said non-residents need not report directorships in companies outside India that have no income nexus with the country.

There is, however, no express clarification for not-ordinarily residents (NOR) who are in similar tax situation as non-residents (NR). “CBDT may need to clarify this reporting requirement for unlisted equity shares in foreign companies for NR/NOR,” said Sonu Iyer, tax partner and people advisory services leader at EY India. For residents who are required to report foreign assets, the circular may create some confusion, as it says that only foreign asset which was held in the foreign accounting year as well as Indian income year needs to be reported in the Foreign Asset Schedule, Iyer pointed out. She said it would be advisable for the taxpayer to report such a bank account even though the circular seems to exempt it from reporting. “This is because non-reporting of this foreign asset would not be in compliance with the Black Money Act, 2015 which levies a penalty for non-disclosure/non-reporting of foreign assets held during the Indian income year (previous year).” Experts also said that the board must clarify the status of returns already filed. “We are just two days away from the filing deadline.

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