I live in Paris currently but will return to India permanently in August next year. Is it compulsory to disclose all my foreign assets and sources of income while filing income tax return in India for the subsequent financial year? Please advise.
The requirement to report foreign assets and foreign income will depend on your residential status in India for the relevant financial year (FY). Residential status in India is determined based on your total physical presence in India in the current FY and preceding 10 FYs (as explained below in detail). Residential status is dynamic and needs fresh determination in each FY.
Only if you qualify as a “resident and ordinarily resident", you will be required to report all your foreign assets in your income-tax return in India. Also, the income earned from such foreign assets during the relevant FY along with the nature of income and head of income under which such income has been offered to tax in the Indian income-tax return needs to be reported in relation to each foreign asset.
The foreign assets to be reported include foreign bank accounts, financial interests, immovable property, accounts in which the individual has signing authority, trusts, and any other capital asset held by the individual outside India.
One has to be careful about reporting foreign assets or income in the return form. Any omission or inaccurate particulars may invite penal consequences under Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.
In your case, you need to first determine your residential status in India for the relevant FY and report any foreign assets and foreign income earned in the relevant FY accordingly.
An individual satisfying any of the basic conditions mentioned below would qualify as a resident. Otherwise such an individual would qualify as a non resident:
The basic conditions are: physical presence in India during the FY is 182 days or more; or physical presence in India during the FY is 60 days or more and 365 days or more in the preceding four FYs.
A resident may either qualify as an “ordinarily resident" or “not ordinarily resident". If both the additional conditions mentioned listed below are met, then the individual would qualify as an “ordinarily resident". If not, such an individual would qualify as a “not ordinarily resident". The additional conditions are: physical presence in India is 730 days or more in the preceding seven FYs; and resident in India in any two out of 10 FYs preceding the relevant FY (as per the basic conditions mentioned above).
An “ordinarily resident" needs to pay tax on global income and is required to report assets held outside India in the income-tax return.
A “not ordinarily resident" and a “non resident" needs to pay tax only on: income received in India or deemed to be received in India; and income accruing or arising in India or deemed to accrue or arise in India.
Sonu Iyer is tax partner and people advisory services leader, EY India. Queries at email@example.com