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New Income Tax Act: Drive against black money to set new hurdles for expats
April, 09th 2012

The government's zeal to unearth black money could result in thousands of expatriates and their families having to provide details of assets held overseas, a requirement that many experts say could deter foreigners from working in India whose economic growth has attracted global talent in areas ranging from deep-sea engineering to movies.

The Central Board of Direct Taxes, or CBDT, has brought out new tax forms for the current fiscal that require all "residents" to provide information about assets located overseas even before Finance Bill 2012, which mandates these disclosures, has been passed by Parliament.

Under the Income Tax Act, the term 'resident' is divided into two categories: 'ordinary resident' and 'resident but not ordinarily resident.' Most expatriates fall under the second category. Those 'not ordinarily resident' do not have to pay tax on their global income, but the new forms may require them to disclose their global assets, a burden some experts say is excessive.

"These changes are likely to create genuine hardship for the expatriate employees who come into India for shorter duration and qualify to be not ordinarily resident in India," says Kuldip Kumar, executive director, PwC.

A finance ministry official said the disclosures are aimed at resident Indians. The intent of the legislation is that their global income should be taxed in India, he said.

But, experts say there is an ambiguity and it needs to be clarified. "If one goes strictly by the language of the forms, the disclosure should apply only to residents, but the CBDT needs to clarify this explicitly," said Kumar.

The disclosures include details of bank accounts, financial holdings, immovable property, other assets and details of any foreign account in which the taxpayer has signing authority.

The family members of expat workers will also need to file I-T returns in India if they own the overseas assets mentioned in the form.

The disclosure seems more onerous, tax experts said, in view of another provision in the Finance Bill that will allow tax authorities to open tax assessments going back 16 years if they detect any concealment of foreign assets.

According to the new forms, even Indian residents holding signing authority for the foreign accounts of their employer will need to disclose overseas assets.

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