Receiving or making payments from/to low-tax jurisdictions or claiming credit for taxes paid abroad is likely to attract utmost attention of taxmen from now. An official source told The Indian Express that income tax officials have been asked to closely scrutinise the tax payers who claim credit for paying taxes abroad. The assessing officer (AO) would be required to get such claims verified by the tax officials of the country where the tax is claimed to have been paid.
The measures are towards not only plugging the loopholes in international taxation for shoring up the revenue collection,but also towards widening and deepening the tax base. The government has drawn flak from various quarters including the standing committee of finance and the CAG on slow growth of tax base expansion vis-a-vis GDP growth.
The official said the AOs have been asked to make proper use of the double taxation avoidance agreement,Tax Information Exchange Agreement,Multilateral Convention for Administrative Assistance in Tax Matters and SAARC multilateral agreement for tax to ensure that the assessees are unable to exploit any loophole for evading tax payment in India.
Currently,section 90 and 91 of the Income Tax Act,1961,allows any assessee to claim credit for taxes paid aboard. Since in India,residential status determines the taxability of an assessee,the global income of residents is taxable in India while for non-residents only Indian income is taxable. The resident assessee is allowed to set off the tax paid abroad against his total tax liability payable in India.
Many companies are acquiring assets abroad,people are going to developed countries for jobs more than ever before. The effort is in the direction of discouraging tax evasion by such entities. In some cases,the assessees show the income from foreign countries as net income after reducing the expenses incurred outside India for instance,in the case of film industry,professionals and sports person. We have asked the AO to examine the expenses incurred outside India carefully, an official said.
The I-T department has also asked its officials to monitor the gifts,shares,debts and loans received by tax payer from a foreign person,or where the tax payer has made any payment to a person abroad for getting any goods or services.
checks & balance
Finance ministry has shifted focus to international taxation issues given the increase in number of disputes between income tax authorities and foreign companies and individuals working abroad
I-T department has also asked its officials to monitor gifts,shares,debts and loans received from a foreign person