Wealthy individuals are receiving summons from the investigation wing of the Income Tax department, which is probing their non-resident status.

The summons are largely based on information obtained from jurisdictions such as Singapore, Switzerland, Cayman Islands and British Virgin Islands, pertaining to Indians who are said to control certain structures or are in the role of decision-makers in certain entities.

“A large amount of data from various jurisdictions is being received by Indian authorities, linking Indians with certain offshore interests like trusts, corporate entities, and bank accounts, in various capacities. This has triggered issuances of a large number of summons from the tax authorities seeking explanations and additional information around offshore interests,” said Ashish Mehta, Partner at Khaitan & Co.

The questionnaire sent with the summons require the recipients to prove their non-resident status, if applicable, he added.

The department is asking for tax filings as well as passport and immigration details dating from the time of acquiring the asset, which, in some cases, could go as far back as 30 or 40 years.

Individuals have to determine their residential status for each financial year. If they become non-resident during any financial year, they must provide evidence of their stay outside India beyond the threshold, including addresses among other details.

“Many high net-worth individuals who migrate abroad for work or permanently, start filing their returns as non-residents but miss updating their records. This is pertinent compliance to ensure that tax authorities have the requisite details for determining their status,” said Raashi Shah, Partner, Illume Advisory.

Documents to be furnished

The summons is a preliminary stage of the investigation, wherein individuals are given an opportunity to explain their case and furnish facts to allay the tax authorities’ concerns.

The documents to be furnished to prove residential status include passport, lease agreement, employment contract, bank statements, and utility bills, Shah said. There would be queries related to travel history, employment, and residency status in India and abroad, she added.

According to Mehta, tax return filings as a non-resident as well as passport copies evidencing stays in India can be submitted. In some cases, the tax authorities may cross-verify the stay in India by seeking information from the Bureau of Immigration.

Based on the submissions, the IT department can accept the non-resident status of the individual and close the file or probe further for non-reporting or tax evasion. Post this, the department can invoke the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, for offshore income or initiate income tax proceedings if the tax evasion pertains to Indian income.

The proceedings could extend to a year or more after the summons.

Non-resident playbook

For resident taxpayer, all income is taxable in India, irrespective of whether it is earned or accrued outside India.

For a non-resident, all income which accrues or arises outside India is not taxable in India.

A person is deemed to be a non-resident if the period of stay in India is less than 120 days.

Citizens and PIOs staying 120-181 days in India, with income less than Rs 15 lakh and income other than foreign source, are ‘Resident’ but not ‘Ordinarily Resident’. Others staying this long are non-resident.

An Indian citizen not liable to tax in any other country will be deemed to be a resident in India if the total income (other than foreign sources) exceeds Rs 15 lakh in a financial year.