NRIs who haven’t got their status formalised by the authorities concerned have reasons to worry as India’s income tax department has started searching for defaulters.
The department has initiated investigation into the real ‘residential’ status of NRIs as many have abused the status for either evading taxes or to claim unlawful gains and refunds.
This has involved serving notices for opening tax assessment of the past five to six years and the targeted NRIs are asked to furnish their passport copies.
The rule stipulates that a resident can attain NRI status by staying overseas for more than 182 days. A person is considered a ‘resident’ if staying in India for more than 60 days in the year in question and 365 days during the four years prior to that year.
It has been known to the department that many Indians conveniently divide their time between India and abroad to avoid taxes or to claim benefits on the already paid taxes.
NRIs need not pay tax on income earned outside India, but a resident is required to pay tax on his or her global earnings. It is in this context that the tax department is chasing the persons who claimed NRI status, without fulfilling the norms on the period of stay, for suspected tax evasion.
“The tax department is duty bound to ensure that foreign income of residents does not escape taxation. As it is, the department is aware of the ploy that certain persons become NRIs to legalise their undisclosed offshore assets and earnings emanating from them. Those who are caught will have to face legal action, including fines and prosecution,” said Benoy Sasi, international lawyer, DIFC Court, Dubai.
The move of the tax department is to include the NRIs within the definition of ‘assessees’ so that they remain in the tax net and within the ambit of the Black Money Act.
What needs to be done?
In the tax return form for financial year 2018-19, NRIs have to give details of stay in India for the past four years to enable the assessing officer to determine their true residential status as the 182-days rule is often abused.
There are disputes over how one calculates 182 days, whether departure and arrival dates are included or only the arrival date is considered in the period of stay.
Under the 365-day rule, the law allows the tax office to let a person claim NRI status even if he has overstayed beyond 60 days in the fifth year or the year under question.
Still, there are cases where the tax department has refused to extend the benefit of 182 days to persons who have stayed in India for more than 60 days in the relevant year.
Time to file tax returns
For NRIs, income earned or accrued in India is taxable in India. That includes income or profit earned from investments in shares, derivatives, mutual funds and other securities in the stock exchanges.
The last date to file income tax returns is July 31, 2019. All Indians, including NRIs, with a gross total income of over INR250,000 ($3,625; £2,914; €3,247) have to mandatorily file returns. The threshold for senior citizens (above 60 years) is INR300,000 while that for super senior citizens, aged over 80, is INR500,000.
NRIs can file their tax returns electronically using two types of forms ITR-1 and ITR-2. ITR-1 is for individuals declaring total income up to INR5 million ($72,498; £58,284; €64,945). Form ITR-2 is to be used by NRIs if they also have gains or losses from shares/ mutual funds. However, Form ITR-2 cannot be used by NRIs if they have any income from business or profession.
