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Those availing of treaty benefits would now have to file returns of their incomes in India, even if those aren’t liable to be taxed here. The government has changed the Income Tax Rules, making it mandatory for certain classes of assessees, including those covered under bilateral tax treaties, to file their returns in India.

The new rules are effective from April 1,2013 and require mandatory income tax return filing for Financial Year 2012-13 pertaining to assessment year 2013-14, for the all the assesses who have earned income from India on which no tax has been deducted or payble , in terms of the provisions of DTAA.  Earlier, those who didn’t pay taxes in India, owing to the provisions under the double taxation avoidance agreement between India and the country of origin concerned, didn’t have to file the return in India. “A person claiming any relief of tax under section 90 or 90A or deduction of tax under section 91 of the Income Tax Act, shall furnish the return for assessment year 2013-14 and subsequent assessment years,” the Central Board of Direct Taxes said in a notification.

The move would primarily impact majority of the investors from Mauritius who claim treaty benefits and don’t file returns on the pretext that their income isn’t taxable in India. Experts said though the move would increase the compliance burden on assessees, the government would have a lot of information to assess whether treaty relief claimed by people was valid or not.

By making it mandatory, the government is trying to make compliance norms more stringent for these assesses. It is mainly for disclosure purposes.Now, taxpayers would have to report foreign income separately, under a new schedule. They would have to bifurcate the foreign income to which provisions of a tax treaty apply and quote the tax identification number (TIN) in case tax has been paid in a foreign country. If the TIN is not allotted by that country, the assessee would have to furnish his passport number. For instance, if a taxpayer earns income from interest on bank deposits in India, as well as abroad, he would have to state the interest earned on foreign income separately. Taxpayers may claim tax benefits under a tax treaty or the Income Tax Act, whichever provides greater benefits. In Finance Act, 2012, the government had said a tax residency certificate (TRC) would be required to prove the taxpayer was the resident of the tax treaty country concerned. It said had TRC would be a necessary, but not a sufficient condition for availing of treaty benefits. The new rules also make it mandatory for taxpayers with total annual income of more than Rs 25 lakh to declare their domestic assets, including land, buildings, bank deposits, shares, insurance policies, loans, jewellery, bullion, drawings, paintings, yachts, boats, etc. Now, as part of foreign asset reporting norms, assessees also have to state their foreign bank account number and the details of the trusts in which they are trustees.


Published by

CA. Anuj Gupta
(Practices in NRI, Int.Tax, FEMA, TP , FDI/FIPB & FCRA)
Category Income Tax   Report

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