New Delhi, December 7, 2017
Tax authorities have begun acting on information that the US is sharing with India under that country’s Foreign Account Tax Compliance Act (Fatca),
sending enquiry notices to individuals with bank accounts in the US and potentially opening them up to prosecution on charges of concealing black money overseas.
Those getting such letters include a top-ranking executive at a multinational who moved back to India a few years ago. He’s been asked for an explanation regarding dividends received in his US bank account. Several other senior executives who have some financial footprint in the US have also received letters from the Directorate General of Income Tax (Intelligence & Criminal Investigation). India began exchanging such information with the US in September 2015 after signing up to Fatca.
The queries mostly relate to dividends, interest income and deposits in bank accounts of individuals who spent some time in the US, according to officials. It’s not clear how many such notices have been sent out. If the assets and incomes go back a few years but weren’t disclosed in last year’s scheme to regularise black money held overseas, the individuals could find themselves in trouble. The government had given people with overseas assets one last opportunity to disclose them under the scheme.
The Undisclosed Foreign Income And Assets (Imposition of Tax) Act made hiding wealth overseas a criminal offence with a punishment of up to 10 years of rigorous imprisonment and a 120% tax, effectively leading to asset confiscation.
“Information received under Fatca is subject to preliminary filtering and processing by the Directorate General of Income Tax (Intelligence & Criminal Investigation),” said a senior income tax official. “After preliminary verification it will be passed on to assessing officers for further action.”
The tax authorities have asked recipients whether the schedule of financial assets was filed with the income tax return along with declarations of dividend and interest earned in the US. Individuals have also been asked to explain their residency status. Those who don’t respond will face a fine.
Fatca was enacted by the US in 2010 as part of the Hiring Incentives to Restore Employment (HIRE) Act to combat tax evasion by US nationals holding investments in offshore accounts. Signatories to the agreement have to share information on any financial investment by a US citizen residing in those countries and vice versa.
“Several of our clients have started getting such notices. In case the replies are not satisfactory, then the matter will go to the relevant jurisdictional assessing officer. The information shared under Fatca is expected to be used widely and actioned upon,” said Amit Maheshwari, partner, Ashok Maheshwary & Associates LLP.
PwC partner Kuldip Kumar said anyone who gets such an notice “should exercise extreme care in reporting their overseas income and assets details in their return in order to avoid getting stuck to such a difficult situation as with the elevated use of technology and data analytics, such linking of information would be more of routine rather than an exception.”
[The Economic Times]