Non-resident Indians (NRIs) are receiving summons from the investigation unit of the Income Tax department probing their association with foreign financial entities.

Assessees have been asked to furnish information about the year in which a foreign account was opened and their residential status from the time of opening such an account abroad along with copies of passport dating back to the account’s inception. The account could pertain to an investment in an overseas fund or a foreign bank or beneficial interest in trusts.

“There are many instances where summons are being sent to individuals who have been non-resident for past several years basis information received from foreign jurisdiction(s). The onus is on the individual to provide the calculation for his presence in and out of India along with supporting documents,” said Siddharth Banwat, Partner, S Banwat & Associates.

Residency status

An individual is a resident if he stays for 182 days or more in India in the previous year or 60 days in the previous year and 365 days in the four preceding previous years.

“In some cases, the department has been demanding information spanning 40 years, rejecting arguments that it is unreasonable to compile records from such a distant past. Notably, the summons do not explicitly allege that the assessee is a resident of India; however, the burden of proving residential status is placed on the assessee,” said Pankaj Bhuta, Founder, PR Bhuta & Co.

Income from foreign assets

NRIs are not obliged to disclose assets held abroad. The maximum time limit to issue summons or orders under section 149 of the IT Act has been reduced to five years from 10 years in the Finance Act 2024. Prior to April 1, 2021, it was 16 years if the assessee had income from foreign assets.

According to Bhuta, inputs received under exchange of information with another country often do not provide relevant account details.

In one particular case, he said, the department cited a reference number for an overseas bank account but did not clarify whether it referred to a customer ID, account number, transaction reference number, fixed deposit number, or a mutual fund folio number, nor did they specify the country or the date of account opening.

“An NRI is not obliged to confirm whether they own these foreign assets which may be to the tune of crores of rupees, unlike Indian residents which have an obligation to disclose the foreign income/assets or to prove the source,” said Bhuta.

Way out

Assessees must keep proper records, preserve old passports, proof of investment abroad, and provide the requisite documents when asked for. Banwat believes that once an individual is able to prove that he has been a non-resident for several years, he is no longer required to disclose information pertaining to foreign assets.

If the investigation wing does not receive the required details from the assessee, however, it may impose a penalty or add the amount to the assessee’s income. The latter has the option to file an appeal with the Commissioner of Income Tax, the Income Tax Tribunal, or the High Court, said Bhuta.

The IT department could also refer the matter to an assessing officer under the Black Money Act (BMA), resulting in separate proceedings.

“While the provisions of BMA are not applicable to NRIs, improper replies could lead to an ex-parte assessment order and additions under various deeming fictions like section 69 which deals with unexplained investments,” said Binoy Parikh, Executive Director, Katalyst Advisors.

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