New Delhi: On Monday, People who own properties as well as stocks overseas or are beneficiaries of offshore trusts are likely to come on the radar of the income tax (I-T) department for not mentioning their ‘indirect investments’. According to the source report, assuming an Indian resident holding 15 per cent equity interest in an unlisted offshore firm (A) in Dubai, which in turn is a shareholder in three US firms (B, C and D). Indirect ownership in B, C and D has to be revealed in the income tax return along with the investment in A, as per the I-T department.
It must be noted that Tax snoopers have asked a few “high-profile individuals” to explain why they did not mention their indirect investments. As per the tax laws, the Indian resident is the ultimate beneficial owner (UBO) of all the entities, the report highlighted. However ,the hiding of information could attract a penalty of at least Rs 10 lakh; and, if the tax department has doubts regarding the response, it can invoke the new law against black money.
Dilip Lakhani, senior chartered accountant, state that “To define the term ‘beneficial ownership’, Section 139 of the Income tax Act was amended. The new definition, which attempted to cover indirect ownership as well, came into effect from April 1, 2016. As a result, investment in a structure outside India which in turn has made downstream investments in other structures world over is being covered under the new clause. So long as the Indian resident has substantial stake or voting power or control over board to decide the downstream investment may be covered under the amended definition.”
He further added that in order to avoid unnecessary lawsuits certain objective conditions must be set to explain which deals are considered as ‘indirect ownership’. In the case of Liberalised Remittance Scheme (LRS), the Reserve Bank of India (RBI) has given resident Indians approval to remit up to USD 250,000 a year to buy stocks and properties among other assets outside India. According to the information available with the financial daily, the few cases which have been identified by tax authorities so far linked to investments by residents in unlisted overseas firms (with downstream investments).