I am 55 years old and have been working in Kyrgyzstan for the past 7 years. I have visited India a few times since then but I have not filed any income tax return. Before leaving India, I had invested a substantial amount in some equity stocks and debentures. They give regular income, which is credited to my account. The income from these sources has regularly been above the standard deduction limit in many years. I plan to move back to India now and I want to have all the paperwork sorted out.
a. Have I made a mistake by not filing a return for all these years?
b. What remedial measures can I take? I am ready to pay penalty, if needed.
Taxability in India depends on the following factors:
(a) Source of income
(b) Residential status
Typically, source of income lies where the services are performed, or where the asset, from which the income arises, is located. Residential status in India is determined based on your total physical presence in India in the current financial year (FY) and preceding 10 FYs. Based on the physical presence in India, an individual may qualify as:
(a) Resident and ordinarily resident (ROR)
(b) Resident but not ordinarily resident (RNOR)
(c) Non-resident (NR)
An individual qualifying as ROR would be taxed on global income and is required to report global assets in the India tax return. However, an individual qualifying as an NR or RNOR is taxable only on the income that is earned or received in India.
Based on the number of days present in India and in the preceding 10 FYs, you will need to determine your residential status for each of the FYs and evaluate taxability of each source of income.
You have earned fixed income from equity stocks (dividend income) and debentures (interest income).
Dividend income, from equity shares of an Indian company, is exempt from tax in India. However, interest on debentures will be taxable in India.There will be tax implications on sale of equity shares and debentures also, depending on the period of the holding of the same.
In case your total taxable income (i.e., gross income excluding the exempt income) exceeds the threshold for taxable income for a particular FY, there is a requirement to file an Indian income-tax return. The due date to file the income-tax return is 31 July. A belated return can be filed within 2 years from end of relevant FY (1 year from end of the relevant FY from FY17 onwards).
Please see table for the due date for filing original income-tax return, belated income-tax return and taxable income threshold for the past 7 years.
Below are the consequences for not filing India income-tax returns:
(a) Tax payable on the taxable income
(b) Interest @ 1% per month payable for delayed payment of tax
(c) Interest @ 1% per month payable for delayed filing of income-tax return
(d) Interest @ 1% per month payable from respective due date for default in payment of advance tax
(e) Penalty of Rs5,000 may be levied if a tax return is filed after 1 year from the end of relevant FY
(f) Penalty ranging from 100% to 300% of tax for concealment of income (100% to 200% from FY17 onwards)
(g) Prosecution proceedings may also be initiated for non-filing of income-tax returns
As the due date to file income-tax returns for FY11 to FY14 has elapsed, you may at least deposit the tax and interest payable suo moto.
It is recommended that you seek advice from a professional who would evaluate your specific facts and advise on remediation.
Sonu Iyer is tax partner & people advisory services leader, EY India.
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