Shuddhasattwa Ghosh
IN the Union Budget introduced in March 2012, it was proposed to make it mandatory for every individual qualifying as a "Resident" 1 of India having an asset (including financial interest in an entity)/signing authority outside India, to file a tax return in India. This proposal was tabled as to be made effective for the tax returns to be filed for the financial year (FY) 2011-12 onwards. While the Finance Bill containing this proposed amendment is yet to be passed as law in the Parliament, the new Income-tax forms have already been notified by CBDT recently, bringing into effect additional reporting requirements for such Residents.
Until last year, an individual was required to file a tax return in India only if there was any taxable income. Consequent to this amendment, even if there is no taxable income in India, it will be mandatory for such Residents to now file a tax return in the prescribed form providing the required details. Also, in February2012, the Government had notified that salaried individuals having a total income of less than Rs. 5 lakhs would be exempt from filing their tax return for FY 2011-12 subject to prescribed conditions. However, such individuals may not be exempt from filing their tax return now if they qualify as Resident and have foreign assets.
Majority of the individuals who file their tax returns are those having income from salary, one house property or other sources. For FY 2010-11, such individual could file the tax return in a simple 2 page form using Sahaj (Form ITR 1). However, for FY 2011-12, individuals who qualify as Resident and having such foreign assets cannot use Sahaj and will need to necessarily file the tax return in Form ITR 2 providing the details relating to such foreign assets.
Most tax payers generally prepare/file their tax returns in the last few days of the filing deadline. This year, it may not be so simple if the individual qualifies as Resident and has foreign assets as additional information relating to foreign assets will need to be collated/ reported in the tax return before filing.
A new schedule (Schedule FA) has been inserted in Form ITR 2/ITR 4 as applicable for this purpose. Information to be reported includes details such as name, address, nature of asset, country, peak balance during the year/investment etc. relating to the following foreign assets:
• Foreign Bank Accounts
• Financial interest in any entity
• Immovable property
• Any other asset
• Account in which having signing authority.
"Any other asset" has not been defined in the proposed amendment/forms. It is to be seen if there will be any clarification issued by the Government.
There has also been a debate as to which category of individuals are covered as Residents. As per the Income-tax law, Residents are categorised into Ordinary Resident ("OR") and Resident but Not Ordinary Residents ("RNOR"). The tax forms however refer only to Ordinary Resident as "Resident". Whether the intention of the Government is to make the reporting applicable only to ORs or to both categories of Residents is yet to be clarified.
In the absence of clarity, there is a strong view that both categories of Residents will need to report the details of foreign assets. This will mainly impact expatriates working for short periods in India, Non Resident Indians (NRIs) returning/their family members who generally qualify as RNOR. Though they do not have to offer income arising and/or received outside India to Indian income tax, they will be required to file tax returns in India if the intention of the Government is to extend the applicability to RNORs also. This could result in undue hardship for them. A clarification in this regard from the Government would address the concerns relating to such categories of individuals.
Further, it has been made mandatory for Residents having such foreign assets or individuals having total income exceeding Rs. 10 lakhs to electronically file their tax returns in India.
Apart from the reporting of foreign assets for Residents as discussed above, the following are some of the other key changes in the newly notified tax forms which would definitely increase the work associated with return filing:
• Schedule requiring details related to tax relief claimed with respect to foreign taxes paid on doubly taxed income
• Additional details like percentage of share, name and PAN (optional) of co-owner etc. if house property is co-owned,
• Schedule requiring PAN of donee for donations made under Section 80G
In the past the Government has always emphasised the need for simplified tax forms to minimise tax filing hassles for individual tax payers and hence introduced Saral/Sahaj forms. Keeping the same spirit, hopefully the Government will soon address these issues/provide suitable clarifications to minimise undue hardship to individuals filing their tax returns.
(The Views expressed are personal.)
1 As per Indian tax law, an individual would qualify as a Resident of India if
(a) he stays in India for 182 days or more during the tax year OR
(b) stays in India for 60 days or more during the tax year and for 365 days or more during the preceding 4 tax years
IN the Union Budget introduced in March 2012, it was proposed to make it mandatory for every individual qualifying as a "Resident" 1 of India having an asset (including financial interest in an entity)/signing authority outside India, to file a tax return in India. This proposal was tabled as to be made effective for the tax returns to be filed for the financial year (FY) 2011-12 onwards. While the Finance Bill containing this proposed amendment is yet to be passed as law in the Parliament, the new Income-tax forms have already been notified by CBDT recently, bringing into effect additional reporting requirements for such Residents.
Until last year, an individual was required to file a tax return in India only if there was any taxable income. Consequent to this amendment, even if there is no taxable income in India, it will be mandatory for such Residents to now file a tax return in the prescribed form providing the required details. Also, in February2012, the Government had notified that salaried individuals having a total income of less than Rs. 5 lakhs would be exempt from filing their tax return for FY 2011-12 subject to prescribed conditions. However, such individuals may not be exempt from filing their tax return now if they qualify as Resident and have foreign assets.
Majority of the individuals who file their tax returns are those having income from salary, one house property or other sources. For FY 2010-11, such individual could file the tax return in a simple 2 page form using Sahaj (Form ITR 1). However, for FY 2011-12, individuals who qualify as Resident and having such foreign assets cannot use Sahaj and will need to necessarily file the tax return in Form ITR 2 providing the details relating to such foreign assets.
Most tax payers generally prepare/file their tax returns in the last few days of the filing deadline. This year, it may not be so simple if the individual qualifies as Resident and has foreign assets as additional information relating to foreign assets will need to be collated/ reported in the tax return before filing.
A new schedule (Schedule FA) has been inserted in Form ITR 2/ITR 4 as applicable for this purpose. Information to be reported includes details such as name, address, nature of asset, country, peak balance during the year/investment etc. relating to the following foreign assets:
• Foreign Bank Accounts
• Financial interest in any entity
• Immovable property
• Any other asset
• Account in which having signing authority.
"Any other asset" has not been defined in the proposed amendment/forms. It is to be seen if there will be any clarification issued by the Government.
There has also been a debate as to which category of individuals are covered as Residents. As per the Income-tax law, Residents are categorised into Ordinary Resident ("OR") and Resident but Not Ordinary Residents ("RNOR"). The tax forms however refer only to Ordinary Resident as "Resident". Whether the intention of the Government is to make the reporting applicable only to ORs or to both categories of Residents is yet to be clarified.
In the absence of clarity, there is a strong view that both categories of Residents will need to report the details of foreign assets. This will mainly impact expatriates working for short periods in India, Non Resident Indians (NRIs) returning/their family members who generally qualify as RNOR. Though they do not have to offer income arising and/or received outside India to Indian income tax, they will be required to file tax returns in India if the intention of the Government is to extend the applicability to RNORs also. This could result in undue hardship for them. A clarification in this regard from the Government would address the concerns relating to such categories of individuals.
Further, it has been made mandatory for Residents having such foreign assets or individuals having total income exceeding Rs. 10 lakhs to electronically file their tax returns in India.
Apart from the reporting of foreign assets for Residents as discussed above, the following are some of the other key changes in the newly notified tax forms which would definitely increase the work associated with return filing:
• Schedule requiring details related to tax relief claimed with respect to foreign taxes paid on doubly taxed income
• Additional details like percentage of share, name and PAN (optional) of co-owner etc. if house property is co-owned,
• Schedule requiring PAN of donee for donations made under Section 80G
In the past the Government has always emphasised the need for simplified tax forms to minimise tax filing hassles for individual tax payers and hence introduced Saral/Sahaj forms. Keeping the same spirit, hopefully the Government will soon address these issues/provide suitable clarifications to minimise undue hardship to individuals filing their tax returns.
(The Views expressed are personal.)
1 As per Indian tax law, an individual would qualify as a Resident of India if
(a) he stays in India for 182 days or more during the tax year OR
(b) stays in India for 60 days or more during the tax year and for 365 days or more during the preceding 4 tax years
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