NEW DELHI: New Undisclosed Foreign Income and Assets Bill, 2015 has made it mandatory for the foreign workers in India to report their overseas assets and income but tax experts say they can take cover under the tax treaties for not paying tax in India. But giving powers to tax officials to jail foreigners for non-disclosure of assets will just lead to harassment, fear tax lawyers.
“Expats are reluctant to make disclosures, including for the reason that their foreign income is often not taxable in India, due to a tie-breaker clause in most tax treaties that India has entered into; such treaties often lead to the effect of foreign income not being taxable in India even after they become ordinary residents,” said Ketan Dalal, Senior Tax partner, PWC, India. India has signed tax treaties with 90 countries with almost same framework which has a “tie-breaker” clause.
Under the existing provisions of Income Tax Act, 1961, an individual qualifying to be resident and ordinarily resident (ROR) of India is under an obligation to report details of foreign assets (including financial interest in any entity) in his or her income tax return applicable with effect from financial year 2012-13. While earlier the penalty for non-disclosure was just a fine, tax experts now say failure to report their overseas income or assets accurately could lead to potential jail term under the proposed bill.
“The implications are wide ranging. For example, if an American expat is in India for three years and is a resident of US under the tax treaty, then his income from dividend and interest in the US shall be taxable in the US only,” said Dalal. But a tax official in India can always raise queries on the size of the house, amenities in the overseas property – just to harass an expatriate.
