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Asset Located outside India Acquired by NR out of income not chargeable to tax in India – Section 2(11)

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June 8, 2021

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6 mins read

Asset Located outside India Acquired by NR out of income not chargeable to tax in India – Section 2(11)

In certain cases, a person may have been a non-resident at the time, when he  acquired the foreign asset   out of foreign his genuine sourced income. Subsequently, such person may become a resident in India, and  such asset may be discovered by the AO. In such a case, the issue that arises is whether such person is liable to pay income-tax on such assets under the provisions of the Black Money Act ?

Let us understand this problem with the help of an Illustration :-

Example 3 : –

Mr. A is working under an employment in UK , until March 31, 2012 . He had acquired a house property in UK out of such employment income in 2010-11. He was a non-resident for Indian tax purpose until 2011-12. In 2012-13, he came back , and took up an employment in India   on permanent basis. In April, 2017, the Assessing Officer  discovered such house property.   Whether such property would be considered as undisclosed foreign asset and whether Mr. A is liable to pay income-tax on such income ?

Solution

Mr. A is not liable to pay income-tax on such property under the provisions of the Black Money Act. This is because, he had acquired such property out of his salary income earned outside India,  which is not chargeable to tax in India.

Thus, any foreign asset , discovered by AO from resident person would not be treated as undisclosed foreign asset under the provisions of the Black Money Act , where the holder of such asset was non-resident at the time when foreign asset was acquired and such asset was acquired out of foreign sourced income , which is not chargeable to tax in India.

EXAMPLE 1 : – Currently Resident but NR when acquired foreign undisclosed Asset

Mr. X is currently a resident of India. However, he was a non-resident in India during PY 2011-12 when he had acquired an undisclosed asset outside India (which he continues to hold now) out of income which was not chargeable to tax in India . Whether such asset is covered under the Black Money Act ?

SOLUTION : –

Such asset would not be covered under the definition of undisclosed asset under the Black Money Act as Mr. X was –

  1. non-resident at the time when he had acquired the foreign asset: and
  2. asset was acquired out of income not chargeable to tax in India .

EXAMPLE 2 : –  Currently Non Resident but Resident when acquired foreign undisclosed Asset

Mr. Y is currently a non-resident but was a resident of India in PY 2010-11 when he had acquired the immovable property outside India . Such asset was acquired out of undisclosed income , which was chargeable to tax in India . Whether such asset would be covered under the definition of ‘undisclosed asset located outside India’ under the Black Money Act ?

SOLUTION : –

Such asset would fall within the definition of undisclosed asset under the Black Money Act , as Mr. Y was a resident at the time when he had acquired the foreign asset, and such asset was acquired out of the undisclosed income chargeable to tax in India.

EXAMPLE 3 : – Currently Resident but failed to explain the source of income for investment in such property

Mr. V had acquired immovable property outside India while he was resident in India . When such property was discovered by the AO, Mr. V failed to explain the source of income for investment in such property. Whether such asset is covered under the definition of ‘undisclosed asset located outside India’ under the Black Money Act ?

SOLUTION : –

Such asset would be covered under the definition of undisclosed asset under the Black Money Act, as Mr. V failed to explain the source of investment in such property

For any queries, please write them in the Comment Section or Talk to our tax expert

Arinjay Jain

Bio of author

Arinjay is a Chartered Accountant with more than 20 years of post-qualification experience. He worked as Director, in the M&A Tax Division at KPMG in India. Presently, he is advising several MNCs in UAE on Economic Substance Regulations and impact of the UAE Corporate Tax Law on their business and clients across globe on International Tax issues . He is a well recognised Trainer of International Tax and UAE Corporate Tax. The areas of service include the following : - Advise and Compliance relating to International Tax Issues; Advise relating to UAE Corporate Tax Issues; Advise and Compliance relating to UAE Economic Substance Regulations; Advise and Compliance relating to Indian Income Tax Issues; Other connected matters from a Regulatory perspective.

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