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No need to report Indian global equity MFs as foreign assets when filing ITR

  • Only if the individual qualifies as a resident and ordinarily resident, the individual is required to report all foreign assets in the India return
  • Units of global equity MFs may be reported in the ITR as a foreign asset only if the individual is an owner (legal or direct owner) or a beneficiary

An Indian resident invests through his Indian bank accounts in mutual funds like Franklin India Feeder - Franklin US Opportunities or ICICI Prudential US Bluechip Equity. The funds invest primarily in select bluechip companies listed on the US stock exchanges. Should the Indian resident investor, while filing returns, declare his holding as a foreign asset?

—A. Venkat

The requirement to report foreign assets in the income-tax return depends on the residential status in India for the relevant financial year (FY). Only if the individual qualifies as a resident and ordinarily resident, the individual is required to report all foreign assets in the India return. One has to be very careful in reporting foreign assets or income. Any omission or inaccurate particulars may invite penal consequences under Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.

Units of global equity mutual funds may be reported in the income-tax return as a foreign asset only if the individual is an owner (legal or direct owner) or a beneficiary or a beneficial owner of the shares of overseas entities held by the global equity mutual funds.

In the present case, the individual is the owner of the units of the global equity mutual funds registered under the Securities and Exchange Board of India (Sebi) and governed by Indian laws. The individual may not be considered as the owner of the downstream investments made by the global equity mutual funds as he or she cannot have any interest (including beneficial interest) in the individual assets owned by global equity mutual funds. The interest in global equity funds in such a case will be limited to the units held by the individual. Also, the individual will not have any right or control over the assets of global equity mutual funds in the capacity of a unit holder.

The intent of the law is to capture the details and information of foreign assets and/or interests located outside India in the income-tax return, whereas a holding in Indian global equity mutual funds formed in India and registered with Sebi are per se Indian assets.

Accordingly, there is no requirement to report global equity funds as foreign assets in the income-tax return. It may, however, be clarified that this conclusion is based on the critical assumption that the individual as a unit holder in Indian global equity funds does not have any right or control over the underlying foreign investments made by such fund in his/her capacity as the unit holder.

Sonu Iyer is tax partner and people advisory services leader, EY India. Queries at mintmoney@livemint.com

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