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Alerts:

Tax Alert: Tax return’s disclosure requirement for foreign directorship / foreign assets relaxed

29 August 2019

Clarification with respect to disclosure requirement for foreign directorship

Annually, taxpayers are required to file their India tax returns in the prescribed income tax return (ITR) forms. Depending upon the type of income and the taxpayer’s status, various details / information needs to be disclosed in the ITR Forms. Further, these ITR Forms are tax year specific. Hence, every year the Central Board of Direct Taxes (CBDT) releases ITR forms. This year the CBDT has notified[1] the ITR forms on 1 April 2019 and thereafter issued instructions for filing the forms. The software utility for e-filing was also released subsequently.

The ITR Form-2 and ITR Form-3 notified for the fiscal year 2018-19 requires a taxpayer to provide following information in case he/she was a director in a Company at any time during the fiscal year:

  1. Name of Company
  2. Tax Registration Number (PAN)
  3. Whether its shares are listed or unlisted
  4. Director Identification Number (DIN)

The above-mentioned details need to be provided for all the Companies in which the taxpayer is a director.

After the ITR forms were notified, various queries pertaining to filling-up of ITR Forms were raised. In order to address such queries, the CBDT had released a Circular[2] clarifying the queries that were raised. As per Answer to Question 3 of this Circular, non-resident or resident but not ordinarily resident is required to disclose details of his directorship in a foreign company which does not have any income accruing or arising in India.

Post this circular, representations were made to the CBDT stating that non-residents are required to pay tax only in respect of income received in India or income accruing or arising in India (i.e. asset/income nexus with India). Therefore, non-residents should not be required to disclose details of directorship in foreign companies. The disclosure requirement in ITR Forms should be limited only to assets and income which have a nexus with India.

In light of the representations, the CBDT has recently issued another circular[3], wherein it has clarified that a non-resident shall not be required to disclose details of his directorship in a foreign company, which does not have any income received in India, or accruing or arising in India.

The requirement of non-resident taxpayer disclosing directorship details is tabulated hereunder:

Particular

Disclosure requirement

Indian Company

Yes

Foreign Company that neither have asset nor income nexus with India

No

Foreign Company that has either asset or income nexus with India

Yes

Further, it is also clarified that the resident taxpayer would continue to be required to disclose details of his directorship in any company, including foreign company.

 

Clarification with respect to disclosure requirement for foreign assets

Further, in ITR Forms-2,3,5,6 and 7, a resident taxpayer is required to state whether he had anytime during the fiscal year:

  1. Held, as beneficial owner, beneficiary or otherwise, any asset (including financial interest in any entity) located outside India; or
  2. Had signing authority in any account located outside India; or
  3. Had income from any source outside India?

If any answer to the above is in affirmative, the taxpayer is required to disclose the details of foreign assets etc. in the relevant schedule (i.e. Schedule FA) of ITR Form. Representations were made to the CBDT citing examples where the foreign assets have been acquired after the end of “relevant accounting period” (in foreign jurisdiction) but before the end of “previous year” (in India). In this regard, CBDT has clarified that a taxpayer shall be required to answer in affirmative only when the taxpayer has held the foreign assets etc. at any time during the “previous year” (in India) as also at any time during the “relevant accounting period” (in the foreign tax jurisdiction).

BDO Comments:

The ITR forms for fiscal year 2018-19 include additional disclosure requirement of providing directorship details. Non-resident taxpayers were sceptical to provide this information as the Foreign Company in which they held directorship may not have any presence and/or asset / income in India. This Circular has provided much needed respite to such non-resident taxpayer.

Also, it is a welcome move on the part of CBDT to state that the directorship details entered in the India ITR form are not relevant for computation of total income or tax liability of the taxpayer.


[1] Notification No. G.S.R. 279(E) dated 01 April 2019. 

[2] Circular No. 18/2019 dated 08 August 2019.

[3] Circular No. 21/2019 dated 27 August 2019.