NRIs Under Scrutiny: India’s It Department Cracks Down on Tax Evasion
India’s income tax (IT) authorities have reportedly asked non-resident Indians (NRIs) to give sworn statements on the exact number of days spent in the country, in what is seen as a bid to unearth tax violation cases by expat workers.
NRIs are not required under the law to pay tax on overseas earnings or declare foreign assets.
However, if they overstay – spending more than 181 days in a year in India – tax and disclosure regulations, as related to residents, will be applicable to them.
The Economic Times (ET) reported that in the past few weeks, the tax department has served notices to dozens of NRIs asking them to submit signed affidavits, affirming the fact that they have not been residents during the periods mentioned by them in their tax returns.
Besides, the notices also sought expat employees to specify the number of days spent in each of the years in question.
In some notices, the assessment years under review are from 2014-15 to 2022-23, the ET report said.
The IT move seen as harassing NRIs
Tax experts said the IT department can always obtain information from India’s immigration department which collates flight-wise, and date-wise data of every person coming and leaving the country.
“The [IT] assessing officer need not ask NRIs who have settled abroad for a long time to submit affidavits to prove their NRI status on the basis of number of days of stay in India,” the ET report said, quoting Rajesh P Shah, partner at the CA firm Jayantilal Thakkar and Company.
Thakkar said NRIs, who are currently abroad, are finding it difficult to submit affidavits on Indian stamp paper as well as to get such affidavits notarized.
The report said however, citing unnamed sources in the tax department, said some of the NRIs who visited India in 2020 and 2021, stayed back, and have been filing IT returns (ITRs) as NRIs may find themselves in the crosshairs of the tax office.
Proof of stay
According to tax experts, the stamp on a passport may be adequate proof for computing the number of days of presence in India, but for determining the presence in other countries it may not be enough as many countries do not have a stamping requirement while leaving the country.
“This makes it difficult for professionals to verify the actual number of days’ presence for their clients in India and in a particular country outside India,” said Siddharth Banwat, a partner with a CA firm.
He said in fact, many times, clients have been casual in sharing information with professionals about their residential status for filing their return of income.
“Obtaining an affidavit from persons about their residential status by the department makes it more onerous for the person making such a declaration. Giving a false statement in an affidavit is an offence,” said Banwat.
Consequences of overstay by NRIs
Tax experts said a person submitting incorrect information or false affidavit would find himself violating the penal code, besides exposing himself to the possibility of getting pulled up under the Income Tax Act and the Black Money (Undisclosed Foreign Income and Assets) and imposition of Tax Act 2015.
Apart from the 181 days criteria, some of the NRIs have to also watch out for another change in law linked to residency.
Following an amendment to the IT Act 3 years ago, an NRI visiting India and spending more than 120 days (but less than 182 days) is treated as a ‘resident but not ordinary resident’ (or, RNOR) if such a person’s ‘total income’ – i.e., gross income post deductions – arising from India is INR 15 million ($180,48) or more.
Like an NRI, an RNOR neither has to pay tax on foreign income nor disclose foreign assets. However, if an RNOR is not a tax resident of any other country, then his foreign earnings are taxed in India, even though the foreign assets need not be disclosed in ITRs (income tax returns).
