The worries of non-resident Indians are not ending even after the initial discomfiture from the presentation of the Indian budget.
First it was the redefinition of the NRI status to bring them in the income tax net. Now, NRIs who have ‘unrealistic’ earnings, whether in India or abroad, are liable to answer the taxman’s query about their bloated income. And if proved willful dodger, they face fine and financial loss.
“This hot pursuit is expected to be mounted from next year based on this year’s filings and disclosures. One thing is for sure that the taxmen will question NRIs on their unrealistic overseas earning, if they are not genuine. Again, clarification that overseas earnings of bona fide workers won’t be taxed is ambiguous,” said Mukund Cherrusserry, director of TrendRiser Securities, an investment advisor.
Pursuit of black money
The government’s new initiative is a sequel to the passage of the Black Money Act in 2015 when many residents chose to become NRIs to convert their undisclosed income as legitimate overseas earnings from trading, consultancies or salaries abroad.
It’s no more possible with the new definitions and the threatened hot pursuit by the taxmen. NRIs have to justify those incomes by proving that they made that money abroad as bona fide workers.
It has now come to light that many NRIs show fake overseas income to ‘legitimise’ their foreign earnings. The taxmen are asking them to explain their earnings. The way out is to clearly define the term ‘bona fide’ to avoid litigation.
It was proposed to reduce the period of stay in India to 120 days from 182 days earlier for Indians to be categorised as NRIs. An NRI who is not taxed in a foreign country will become taxable in India. There are cases that some Indians may be staying in different countries for a certain number of days for businesses or on assignments. These ‘stateless’ people are deemed to be a resident of India and their worldwide income will be taxed.
Who is bona fide?
The tax regulator, Central Board of Direct Taxes, had clarified that overseas income of ‘bona fide’ workers of Indian origin will not be taxed. That itself was a warning that NRIs other than ‘bona fide’ workers will not be spared.
The budget proposal was that any Indian citizen who is not liable to tax in any other country or territory shall be deemed to be resident in India and they will have to pay tax on overseas income and disclose foreign assets.
Obviously, not all NRIs are bona fide workers as many earn income from business, executive positions or as promoter of joint venture companies abroad.
Under the proposed residency rules, any citizen of India or persons of Indian origin overstaying for 120 or more days on visit to India will be considered as resident whose global income would be taxed by the Indian authorities.
Tax consultant Mitil Chokshi recently elaborated the modus operandi of ingenious NRIs to escape the tax net. Some used their Indian business entities to make overseas direct investments, allowed up to four times the new worth with the total amount split into a small equity and large loan, and brought back to India undisclosed overseas funds as capital gains and interest on loans.
Others ‘joined’ as senior executives or directors earning huge fees and salaries. Thus, the tax authorities had to go beyond the salary certificates or tax residency certificates issued abroad.
“This is what is worrying those NRIs, that the taxmen would investigate from a retrospective perspective and may refer such suspicious cases to the agencies probing money laundering,” said Khalid Abu Zaher, financial and regulatory expert at Al Khabir Accounts Records.
“It should not be the case that genuine businessmen are harassed. There are cases when family members serve as directors in their own companies abroad. The ambiguity on the definition of ‘bona fide worker’ would generate problem for genuine businessmen,” added Zaher.
