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Taxmen probe rich Indians for having foreign policies without approval

January 19, 2023 

Foreign Exchange Management Act (Fema) is triggered when life insurance is bought from a foreign company without RBI approval

Several wealthy Indians have either purchased or have become nominees in foreign life insurance policies without the approval of the Reserve Bank of India, The Economic Times reported Thursday.

Tax officials are now asking these rich Indians to expalin why their names have figured in these insurance policies that run into millions of dollars.

The report, citing two people familiar with the development, said summons have been issued under section 131 of the Income Tax Act, which allows tax authorities to conduct enquiries.

One tax official said the enquiries are based on specific inputs. The assesses have been asked to explain why they did not disclose the information in foreign assets (FA) schedule of the I-T returns.

The FA schedule mandates that resident Indians disclose details of their foreign policies to tax authorities even if they may not have purchased them (a relative may have purched the policy for them) but are named in those policies.

At present, the tax official told ET, the probe is focused on ascertaining whether this was negligence or deliberate. "Based on the investigation, cases could also be referred under the black money Act provided it is above the permissible threshold,” the official added.

The Foreign Exchange Management Act (Fema) is triggered when life insurance is bought from a foreign company without approval from the RBI.

After getting the central bank's approval, a person can buy such a policy by transferring the premium amount using RBI's liberalised remittance scheme. The LRS allows a resident to invest up to $250,000 a year in stocks, bonds, properties and debt mutual funds.

The I-T department received its third tranche of information as part of the annual automatic information exchange arrangement with various countries in October 2022.

[The Business Standard]