Foreign cos must report exempted income to I-T.

Taxmen will now be able to keep a closer tab on
income exempt under foreign tax treaties. The Central Board of Direct Taxes (CBDT)
has said that any income arising in India, but exempt from the country’s tax
laws, because of a double tax avoidance treaty, must be first reported to the
Tax Department before availing the exemption.

Even if the income is taxable outside India, the
assessee must include it in the total income chargeable to tax in India, the
board has said in a recent notification. “Relief will be granted in accordance
with the method for elimination or avoidance of double taxation provided in such
agreement,” the Notification added.

With a large number of foreign companies operating
in India, the Department has found that there are many cases where either they
are not reporting their exempt income or underreporting it.

While the assessee can avail the same foreign tax
credit even now, the Tax Department will get a much better understanding of his
earnings, a Finance Ministry official explained.

The Department’s missive, however, only relates to
earnings of resident companies and individuals. Tax experts are of the view that
with increased movement of workers and the cross-border nexus between companies,
the Notification will help the Department get a better understanding of the
income of such assessees.

“It looks like the Department’s intention is to get
a complete picture of a person’s global earnings regardless of the benefits
under the tax treaties,” Amitabh Singh, partner Ernst and Young said. The
clarification is the latest in the CBDT’s efforts to plug loopholes in the
country’s international tax laws given that a large number of MNCs have set up
shops in India through back offices and subsidiaries and are availing benefits
under tax treaties.

(Source : Internet, 8-9-2008)