In a major crackdown on illegal assets stacked abroad, the IT Department has tightened its whip on the people who own properties or assets abroad. The IT Department has questioned some "high-profile individuals" to clarify the reasons for not declaring indirect investments in their IT returns. According to the Economic Times, the tax sleuths have identified a few such people who have made investments in unlisted overseas firms.
The existing tax laws state that an Indian resident is the ultimate beneficial owner (UBO) of all the companies they have controlling stake in, the report highlighted. A UBO is a person who ultimately owns or controls a legal entity and/or the natural person on whose behalf a business is conducted.
According to an example stated in the report, if an Indian resident holds 15 per cent equity in an unlisted offshore firm (A) in Dubai, which in turn is a shareholder in three US firms (B, C and D), the resident has to declare the indirect ownership in B, C and D in his/her income tax return along with the investment in A.
Any information hidden from tax sleuths could attract a penalty of at least Rs 10 lakh and if the IT department finds the response to be ambiguous, it can invoke the new anti-black money law and take strict criminal action in such cases.
The definition of the term 'beneficial ownership' in Section 139 of the Income Tax Act was amended to cover indirect ownership. According to the law, a beneficial owner is an individual who, either enjoys the benefits of ownership even though the asset or property is in other person's name. It also means any individual who, either directly or indirectly, has the power to vote or influence the business decisions regarding a specific security, such as shares in a company.
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