Relief for expatriate employees in simplified I-T forms

Foreign nationals in India on business, employment or student visa do not have to report foreign assets

Just a few days ago, I heard my friend boast about the money saved during his last assignment to London and his investment in a small holiday home in the global financial centre, which he let out. Surprisingly, he was not aware of the recent black money bill and the consequences of not disclosing overseas assets.

The newly enacted 'The Black Money (undisclosed foreign income and Assets) and Imposition of Tax, 2015' is applicable to ordinarily resident taxpayers including their family members. As per the Act, Ordinarily resident taxpayers are required to disclose their foreign assets/income or face stringent penalties. A flat rate of 30 per cent and a penalty of 300 per cent of the tax would be applicable on undisclosed foreign income and assets. Also, one time compliance opportunity (30 per cent tax and an equal amount by way of penalty) will be provided for a limited period for the previous non-compliance and the time frame will be notified as part of the rules.

THINGS TO REMEMBER

• Keep track of income as well as expenditure for the relevant year
• Preserve all copies of investment proofs, bank statements, TDS certificates (Form 16 and 16A), housing loan certificate etc.
• Disclose the various sources of income earned during the previous year
• Disclose foreign assets/ income, financial interest, etc if applicable
• Ensure payment of appropriate self-assessment tax on the personal income
• Ensure timely filing of accurate income tax return forms before the due date

In addition to the tax and penalty, wilful attempts to evade tax in relation to overseas income and assets and other compliances prescribed under the bill will attract rigorous imprisonment ranging from three months to 10 years. Since my friend owns a holiday home which has been let out, he will be required to disclose this in his tax return.

The Government of India had notified income tax return (ITR) forms to be considered for the purpose of filing tax returns for the financial year 2014-15. However, given the extensive information sought by the ITR forms with respect to foreign travel, bank accounts in India and assets held outside India, it was announced that these forms will be reviewed. Having considered the responses from different stakeholders, the government issued a press release on May 31 announcing simplification of the forms.

Here are some of the key changes proposed in the new ITR forms:

• It is proposed that individuals having exempt income (other than agriculture income exceeding Rs 5,000) without any ceiling can now file Form ITR 1 (Sahaj). Earlier, an individual with exempt income exceeding Rs 5,000 had to file an ITR 2
• Currently, individuals and Hindu Undivided Family (HUFs) having income from more than one house property or capital gains are required to file Form ITR-2. Considering that the majority of individuals/HUFs who file Form ITR-2 do not have capital gains, a new Form ITR 2A is proposed which can be filed by an individual/HUF who has more than one house property but does not have capital gains, income from business/profession or foreign asset/income
• In lieu of foreign travel details, it is now proposed that only passport number, if available, would be required in form ITR-2 and ITR-2A. Details of foreign trips or expenditure thereon are not required to be furnished. This is a big relief to all individuals and expatriates who travel abroad on business visits frequently
• As regards bank account details, only the IFS code, account number of all the current/savings accounts which are held at any time during the previous year will be required. Thankfully, the balance in accounts will not be required to be furnished. Further, details of dormant accounts which are not operational during the last three years are not required to be furnished
• A foreign national who is in India on a business, employment or student visa (expatriate), would not mandatorily be required to report the foreign assets acquired by him/her during the previous years in which s/he was a non-resident and if no income is derived from such assets during the relevant previous year. This is a big relief for expatriate employees as well as their family members
• As a measure of simplification, it has been proposed that the main form will not contain more than three pages and other information will be captured in the schedules, if applicable.

As the software for these proposed forms is under preparation, they are likely to be available for e-filing by the third week of June 2015. Accordingly, the time limit for filing these returns for FY2014-15 is also proposed to be extended up to August 31, 2015. A separate notification will be issued in this regard by the government.

Given the proposed changes to simplify the ITR forms, the objectives of providing better taxpayer experience at the time of filing tax returns and tracking of income and assets of ordinarily resident taxpayers can be achieved. The changes would also provide relief to expatriate employees as well as their family members with respect to disclosure of overseas assets acquired before their stint in India, provided no income is derived from these assets during the year concerned.

The writer is tax partner, EY India