Budget 2012 India: Why returning NRIs should watch for new clause in Wealth Tax Act

As the fine print from the Finance Bill starts trickling in, we bring you details that are likely to impact your taxes. 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. Budget at ET: Budget 2012 | Union Budget | Budget 2012 Highlights: Blog | Railway Budget | Budget News | Economic Survey of India Wealth tax: A quick summary 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. The new clause 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 4 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. Vinit Agarwal, Director, KPMG Indian says, "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." 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, says Agarwal, "As I see it, this will 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. Grey area But this clause has a shade of grey. According to this clause, asset includes financial interest in any entity. That is, it could include shareholding in foreign entities. However, this inclusion of financial interest appears only in this clause. 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