A new provision in the Wealth Tax Act is likely to impact NRIs who have returned to India, especially those with significant asset holdings abroad.
According to the Act, all resident Indians are required to pay wealth tax and file a wealth tax return if their net wealth from assets exceeds Rs 30 lakh. ‘Assets’ in this case include land, property, jewellery, cars, aircrafts, yachts and cash in excess of Rs 50,000. For Resident Indians (Resident Ordinary Residents – ROR), wealth tax is payable on all these assets, irrespective of whether they are located in India or abroad.
For Non Resident Indians (NRIs), wealth tax is payable only on those assets that are located in India.
A new clause has been added to section 17 of the Wealth Tax Act. This section deals with ‘wealth escaping assessment.’ Under this section, if a taxpayer fails to disclose certain assets and pay wealth tax on those assets, the assessing officer has the right to open the taxpayer’s returns for the last four years. In addition, if this net wealth that has escaped assessment is likely to be more than Rs 10 lakh, the assessing officer has the right to open returns for the last 6 years.
“Now the new clause says that if the net wealth of the taxpayer that has escaped wealth tax includes any asset, including financial interest in any entity, located outside India, the assessing officer would have the right to go back and open tax returns of the last 16 years,” says Vinit Agarwal, Director, KPMG Indian.
The intention of the new proviso is to bring to book all those tax evaders with significant assets in offshore locations or global tax havens, but it may also impact NRIs who have significant assets abroad and who have returned to India.
While NRIs who have returned to India are exempt from taxes on their global assets for the first two years after they return (because their status is Resident but Not Ordinary Resident, RNOR, for those two years), they become Resident Ordinary Residents thereafter and must pay wealth tax on all assets including global assets.
But there is a little confusion in the act. The main definition of ‘asset’ as defined in the Wealth Tax Act does not seem to be amended to include financial interest. One can only wait for clarity on this aspect.