Shedding ‘Indian resident’ tag won’t help you in tax evasion anymore

Run as much as you can, but tax authorities would catch you. Companies or individuals, who are planning to drop their Indian 'resident' status to avoid the stringent new black money law and evade tax, would not be able to execute their plans this time.

The new black money law came into force from April 1, according to an Economic Times report.

Tax authorities would be able to take action against those having undeclared overseas assets even after they change their residents status."If the overseas asset was acquired and held as a resident and not disclosed, then action can be taken even if there is a change in residency status subsequently," said a government official.

According to the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Bill 2015, all 'resident' Indians have to declare foreign assets to tax authorities. There have been reports of individuals with foreign assets gaining residency in Dubai and Singapore to avoid the law.

The new law has created problems for those who have undisclosed illegal money stashed in foreign banks. As a result tax experts have been getting calls on how to deal with the law.

An individual is a resident if present in India for 182 days or more during a particular financial year or is in the country for 60 days in the relevant financial year along with 365 days or more during the preceding four financial years.

A company is resident if it's a local venture or control and management are wholly based in the country. The new law has many change in residence covered and that is why a compliance window has been proposed, a tax official said. "Assets discovered at a later date when an assessee has changed his or her residency don't alter his situation before the law, which is that his asset was part of his income when he was a resident and not disclosed to tax authorities," the official said.

Sanjay Sanghvi, partner at law firm Khaitan & Co, agreed that such a change wouldn't work. He said, "Merely changing residency to a foreign country may not help since the offence relates to a period when the person concerned was a resident of India. Proceedings can still (be initiated) against him and his properties in India, if any, carry risk of attachment."

The law, part of the Narendra Modi government's crackdown on black money, provides for a compliance window. All those who have foreign assets can pay 30% tax and 30% penalty to avoid prosecution.

After the window closes, tax authorities will be able to initiate action under the new law on the basis of information from other jurisdictions. India has begun to receive information from many tax havens on assets held by Indians.

Undisclosed foreign income or assets will face a tax of 30% along with 90% penalty besides prosecution.
(Image: Indiatimes)