Dubai: Several UAE-based Indian expats have been mailed notices from the income tax department in India particularly relating to their previous investments back home, and this has raised concern among non-resident Indians (NRIs) on what the next step should be if they get such notices.
Here’s what you should know when it comes to what needs to be done if you are a NRI and have received such a notice from the Indian income tax department, as it is vital to know how to respond to them given that there was some confusion around doing them last year as well.
What notices are being sent to these NRIs?
In emailed notifications, titled ‘Notice under Section 148 (or Section 148A) of Income Tax Act 1961’, those NRI investments made in India over the past years, for which no income tax returns were filed, are scrutinised in particular. These notices are sent to NRIs to initiate ‘reassessment proceedings’.
This reassessment is done by including the income which has escaped his or her earlier assessment. This may also be the first assessment where the NRI has not filed the tax return at all before.
Difference between Section 148, Section 148A of Income Tax Act, 1961
Section 148A of the Income Tax Act, 1961, was introduced in 2021 and permits Indian tax authorities to exchange information with the authorities of other countries, including information relating to NRIs. The exchange of information under this section is for the purpose of enabling tax authorities to carry out the provisions of the Income Tax Act, 1961.
On the other hand, Section 148 of the Income Tax Act, 1961, enables the Indian Income Tax Department to issue a notice for reassessment if they believe that the income of the taxpayer has escaped assessment or has been ‘under-assessed’, i.e. the assessment of a tax at a lower value than the correct one.
How are tax notices under Section 148, Section 148A phrased?
Among those NRIs who received notices under these two Sections of Income Tax norms, here’s what was mentioned verbatim in both cases:
1. “In this case, the undersigned has certain information in his possession which is available in ITBA system (Income Tax Business Application software available for Income Tax Authorities) and also on Insight Portal. The said information has been identified and flagged by the Directorate of Income Tax (Systems), CBDT in accordance with the risk management strategy formulated by the Board as per the provisions clause (i) of Explanation 1 to Section 148 of the Income Tax Act, 1961.”
2. “In view of the above facts and circumstances, I consider it is a fit case to issue notice u/s 148 of the Act as income has escaped assessment. Hence notice under Section 148 of the Income-tax Act, 1961 is being issued in the case of the assessee for A.Y. along with this order u/s 148A(d) the Income-tax Act, 1961 with due approval of the competent authority as per the provisions u/s 149(1)(a) and 151(i) of the Income-tax Act, 1961.”
What to know if you’re an NRI who received such a tax notice
If you are an NRI who has received a notice under Section 148A or Section 148 of the Income Tax Act, 1961, here's what you need to know regarding what the notice contains:
• When the notice is received, the tax department list the details of the transactions. For example, the time of deposits, purchase or sale of property, mutual funds, FCNR (Foreign Currency Non-Resident Account) deposit etc.
• Sometimes the amount shown in the table is repeated twice or clients are not able to find the details as the actual amount and reported amount is completely different. In such cases, it is extremely important for a person receiving the notice to take a proper guidance from tax experts before proceeding with any income tax-related submission.
• Reason for the notice: The notice will specify the reason for the ‘reassessment proceedings’. This could be due to the Income Tax Department's belief that there has been an under-assessment or absence of income in the previous assessment year(s).
• Time limit to respond: The notice will provide a time limit within which you need to respond. The time limit for responding to a notice issued under Section 148A is 60 days from the date of receipt of the notice. For a notice issued under Section 148, the time limit is 30 days from the date of receipt of the notice.
• Response to the notice: You can respond to the notice in various ways, such as filing a return of income, furnishing the required information, or filing a written submission challenging the notice. It is advisable to consult a tax expert before responding to the notice to ensure compliance with the relevant provisions of the Income Tax Act, 1961.
• Consequences of non-response: If you do not respond to the notice within the stipulated time limit, the Income Tax Department can initiate proceedings under Section 144 of the Income Tax Act, 1961, which allows the government tax department to make an assessment to the best of its judgment, based on the available information, and pass an adverse order, after which NRIs will have to go through a painful process of appeal.
• Appeal against the assessment: If you are not satisfied with the assessment made by the Income Tax Department, you can file an appeal with the Commissioner of Income Tax (Appeals) within 30 days of the receipt of the assessment order.
In conclusion, receiving a notice under Section 148A or Section 148 of the Income Tax Act, 1961, can be a daunting experience for an NRI.
It is essential to understand the reason for the notice and respond within the stipulated time limit, either by filing a return of income, furnishing the required information, or filing a written submission challenging the notice.