Foreign investors are receiving unexpected tax notices in India, even for transactions where no profit or dividend was earned. According to reports from The Economic Times, different offshore investors including companies, investment vehicles, fund houses, and foreign portfolio investors have received notices under Section 148 of the Income Tax Act in recent weeks. These investors had only purchased either listed or unlisted shares but neither booked profits nor received dividends from their transactions. The latest development shows that several notices relate to purchase transactions, not exits, as reported by The Economic Times. A non-resident merely acquired Indian shares and has not earned any income from the transaction, making this a particularly unusual application of tax reassessment procedures. As per The Economic Times, what's striking is that several notices relate to purchase transactions, not exits, where a non-resident merely acquired Indian shares and has not earned any income from the transaction.
The tax department is initiating reassessment proceedings by reopening old books when there are reasons to believe that some past income has escaped tax. As reported by The Economic Times, such notices are the I-T department's communique for initiating reassessment proceedings, which can be issued up to 5 years 3 months from the end of the assessment year if escaped income is ₹50 lakh or more. The current notices pertain to FYs '19-20, '20-21 and '21-22. These weren't system-driven notices - senior I-T officers approve Section 148 notices and are preceded by 148A notices giving assessees a chance to explain. Since the department wasn't convinced, 148A notices were escalated to 148 notices. According to The Economic Times, experts highlight that such notices, potentially triggered by remittance data, may be misapplied to transactions that didn't generate income, causing confusion and compliance burdens for overseas entities. A reassessment notice opens the door to wider scrutiny - once initiated, the department can examine not only issues that triggered the reopening but also other transactions.
Legal experts have raised concerns about the misapplication of tax reassessment procedures. According to The Economic Times, Aditi Goyal, partner at Trilegal, noted that a share purchase by a non-resident does not, by itself, result in income and there was no obligation to file ITR. She emphasized that a reassessment regime meant to tax escaped income should not be used to question a transaction which produced no income in the first place. However, there may be cases where the department thinks unlisted stocks were acquired below fair value or there was fund round-tripping. Ashish Mehta from Khaitan & Co advised that taxpayers must respond comprehensively to any preliminary enquiry by providing complete documentation on transactions involved, valuation reports, fund source, and reasons for non-filing of returns. As per The Economic Times, experts highlight that such notices, potentially triggered by remittance data, may be misapplied to transactions that didn't generate income, causing confusion and compliance burdens for overseas entities.
Foreign investors need 'permanent account number' (PAN) for stock demat account, but opinions vary on mandatory ITR filing if there's no income. As reported by The Economic Times, a strict reading of the law requires all local and foreign companies to file ITR, but some differentiate between foreign investors with no earnings and those availing treaty benefits to avoid tax. Chartered accountant Ashish Karundia highlighted that sometimes notices may have been triggered by Form 15CA/CB data without considering the transaction year, causing uncertainty and raising compliance burden. Some foreign investors don't file returns to hold back information on significant shareholders and directors, adding another layer of complexity to the compliance requirements. As per The Economic Times, sometimes the notices, designed for genuine income escapement, may have been triggered by Form 15CA/CB data, without considering the transaction year, causing uncertainty and raising compliance burden.
