From 2020-21 onwards, the income tax department will exclude some non-residents and foreign investors from submitting Income Tax Returns (ITRs), in an effort to reduce the compliance burden. Non-residents (corporates/others) who do not earn any income other than income from investment in a "specified fund," which is an Alternate Investment Fund Category III located in an International Financial Services Centre (IFSC) or GIFT city, are not required to file ITR, according to a notification issued by the Central Board of Direct Taxes (CBDT).
In addition, eligible foreign investors (non-residents who operate in accordance with SEBI instructions) who only transacted in capital assets such as Global Depository Receipts, Rupee Denominated Bonds, derivatives, or other notified securities listed on a recognised stock exchange in IFSC during the financial year have been exempted from filing ITRs. This is subject to the requirement that the consideration for the transfer of such asset is paid in foreign currency and that such a class of individuals receive no other income in India.
Non-residents in each of these categories, however, must guarantee that they are excluded from the necessity of getting a PAN. PAN is not needed under I-T laws if tax has been properly deducted from non-residents' income and remitted to the government by the 'specified fund.' According to Amit Maheshwari of tax and consultancy company AKM Global, the announcement states that foreign investors who participate in a fund operating in Gift City and get income from such funds are not required to submit a tax return in India if they have no other income in India.
The non-resident must also provide the 'specified fund' with necessary information and documentation, such as contact information, TIN, and a declaration of residence status. According to Neha Malhotra of Nangia Andersen LLP, as the government possesses all tax-related information on individuals who are exempt from submitting ITRs and whose income is subject to tax deduction at source, this decision has no impact on the government's coffers.
According to Sandeep Bhalla of Dhruva Advisors LLP, the notification exempts the following assesses from filing their return of income: non-resident unit holders of a Category III AIF set-up in IFSC. While they were previously exempted from obtaining a PAN in India, there was no specific exemption granted to them for filing their return of income in India. He also went on to add that the announcement also offers a similar exemption to investors who earn their income only through trading in debt and derivative instruments listed on the IFSC market, the income from which is tax-free u/s 47(vii)(a) & (b) of the Act.
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