Tax watch. NRIs in a bind as taxman slaps advisories on high-value transactions

The income tax department has sent out a slew of advisories to non-resident Indians (NRIs), requiring them to confirm high-value transactions effected in 2022-23, and for non-filing of returns.

NRIs receiving such communication in the past few days include those that have opened FCNR (foreign currency non-resident account) and/or NRE/NRO deposits.

These reminders are an advance intimation of the data that is in possession of the tax department, said market watchers. And may lead to issuance of notices for assessments (or reassessments) followed by a detailed scrutiny — if the taxpayer does not respond by filing revised returns (to address the mismatch) or by replying appropriately on the income tax portal.

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“In some cases, individuals may have deposited funds out of savings from earnings outside of India. In others, property purchase transactions have been the basis of such communication. So long as the source of funds are identified and are out of earnings not chargeable to tax in India, an explanation can be offered,” said Siddharth Banwat, a chartered accountant.

Duplicate entries

The I-T communications could be the result of duplicate entries in Form 26 AS or investments done under a joint account. There could be instances where NRIs have not converted their bank accounts into non-resident accounts. And may have received income in the form of dividends, which are taxable.

“The banks may have been deducting TDS at 10 per cent, assuming these individuals are residents, whereas the deduction for an NRI is supposed to be 20 per cent. This can lead to a situation where tax return needs to be filed as dividends do not enjoy minimum exemption limit,” said Rutvik Sanghvi, a chartered accountant.

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Ashish Mehta, Partner, Khaitan & Co, believes that these advisories may also be the result of Rule 12AB, which was introduced last year and mandates filing of returns for taxpayers whose tax deducted or collected at source in a year exceeds ₹25,000 or aggregate deposits in savings accounts in a year exceed ₹50,00,000. The new norm is applicable for NRIs as well even though the interest earned on NRE and FCNR accounts are exempt from tax.

For NRIs having no source of income in India, the remedy is to file an online response on the IT portal. The portal, however, only offers drop down options affirming select information and does not provide any space to write explanations.

NRIs required to confirm the deposit amounts placed with different banks are in a bind, said Pankaj Bhuta, Founder of PR Bhuta & Co. For example, FCNR deposits are held in foreign currency with Indian banks, whereas banks report them in Indian rupees to CBDT by applying a notional rupee rate. Also, multiple FCNR deposits running into crores may be made during a particular year alongside other NRE/NRO deposits which makes it difficult to segregate between them and match precise amounts that have been reported to CBDT by the reporting banks.

“Appropriate changes in the reporting mechanism should be made in order to avoid last minute inconvenience to the non-resident assessees,” said Bhuta.

A revised or belated return can be filed (up to December 31, 2023) if there was a mismatch in the amount of income offered and that stated in the IT communications or if an NRI taxpayer had missed filing the return of income for financial year 2022-23. If the taxpayer has missed that opportunity, there is an option to file updated returns under Section 139 (8A) and pay additional taxes as mentioned in Section 140B of the Income Tax Act, 1961.