Bought Indian shares but earned no income? Why foreign investors are receiving Income Tax reassessment notices

Several foreign investors are reportedly receiving reassessment notices from the Income Tax Department despite not having earned any taxable income from their investments in India. Tax experts say the notices appear to be driven by risk-based reporting systems and do not necessarily mean that tax is payable.

Foreign investors who have purchased listed or unlisted shares of Indian companies without selling them or earning any dividend, interest or capital gains are increasingly receiving reassessment notices under Section 148 of the Income-tax Act.

Experts say that while these notices may understandably cause concern, they should not be interpreted as evidence of tax liability. Instead, they are part of the Income Tax Department's reassessment framework, which is designed to examine cases where income is believed to have escaped assessment.

"Foreign investors may receive notices under Section 148 of the Income-tax Act where the Income Tax Department, based on information available through its reporting and risk management systems, believes that income chargeable to tax may have escaped assessment," said CA (Dr.) Suresh Surana.

According to him, in some cases the notices appear to have been triggered simply because a foreign investor had acquired Indian shares, obtained a Permanent Account Number (PAN), or was reflected in remittance and transaction-related reporting systems, despite not filing an Indian income tax return.

Buying shares alone is not taxable

Surana stressed that merely investing in Indian securities does not create taxable income.

"The mere purchase of shares or securities in India does not, by itself, result in taxable income. Taxability would generally arise only when there is income, such as capital gains on transfer, dividend income, interest income, or any other income deemed to accrue or arise in India under the Income-tax Act," he explained.

In other words, purchasing listed or unlisted shares is an investment transaction. Unless the investor subsequently sells the shares, earns dividends, receives interest or derives any other taxable income from India, there may be no tax liability arising from the investment itself.

Section 148 notices

Issue	Explanation
Why are notices being issued?	Based on information available through the Income Tax Department's reporting and risk management systems.
Does buying Indian shares trigger tax?	No. Mere purchase of listed or unlisted shares does not create taxable income.
When does tax arise?	On capital gains from sale, dividend income, interest income or other taxable India-sourced income.
Does the notice mean tax is payable?	No. The notice only seeks verification and does not automatically create a tax liability.
Should investors ignore the notice?	No. A detailed response should be filed within the prescribed timeline.

What documents should foreign investors submit?

Although the notices do not automatically imply tax is payable, experts advise foreign investors not to ignore them.

Surana said taxpayers should respond within the prescribed timelines, clearly explaining the nature of the investment, confirming that no taxable income has arisen in India and, where applicable, explaining why no income tax return was filed.

Supporting documents may include investment agreements, share certificates, valuation reports, Form 15CA/15CB, board approvals, remittance records and tax deduction details, depending on the facts of each case.

"The issuance of a notice does not automatically imply that tax is payable. For instance, where the foreign investor has merely acquired shares and has not earned dividend income, capital gains, interest income or any other income in India, the response should clearly bring out that the transaction was an investment transaction and did not result in any income chargeable to tax in India," Surana said.

Documents foreign investors should submit

Document	Purpose
Investment agreement	Establishes the nature of the investment
Share certificates	Proof of ownership of shares
Valuation report	Supports transaction valuation, where applicable
Form 15CA/15CB	Evidence relating to remittances, where applicable
Board approvals	Supports investment transaction
Bank remittance documents	Shows source and movement of funds
Tax deduction details (if any)	Helps establish tax compliance
Explanation for non-filing of ITR	Clarifies why no return was filed, if applicable

Section 148A and Section 148: What's the difference?

Surana explained that Section 148A and Section 148 represent two separate stages of the reassessment process.

Section 148A is the preliminary stage under which the Assessing Officer must provide the taxpayer with an opportunity to explain why reassessment proceedings should not be initiated. The tax officer shares the information suggesting that income has escaped assessment, considers the taxpayer's explanation and then decides whether the matter warrants a formal reassessment.

Only after this preliminary exercise and the required approvals can a notice under Section 148 be issued, requiring the taxpayer to furnish a return for the relevant assessment year and formally commencing reassessment proceedings.

He described Section 148A as an important taxpayer-protection mechanism intended to ensure that reassessment notices are issued only after preliminary verification of the available facts.

What's taxable, what's not

 

Transaction	Taxable in India?
Purchase of listed shares	❌ No
Purchase of unlisted shares	❌ No
Dividend received	✅ Yes (subject to applicable provisions)
Sale of shares resulting in capital gains	✅ Yes
Interest income from India	✅ Yes
Other India-sourced taxable income	✅ Yes

Experts flag compliance concerns

Tax professionals have also raised concerns about the compliance burden arising from such notices.

"The key concern... is that reassessment proceedings are meant to address cases where income chargeable to tax has escaped assessment. However, where a foreign investor has only made an investment and has not received dividend income, capital gains, interest income or any other India-sourced income, the basis for reopening may need to be examined carefully," Surana said.

He added that a timely and well-documented response can help demonstrate that no taxable income has arisen in India, potentially enabling the matter to be resolved at the preliminary stage itself without prolonged reassessment proceedings.