Non-resident Indians (NRI) based in the UK need not worry about the disputed tax liabilities in India as the government has now decided to suspend the recovery of taxes till such disputes are settled by the respective competent authority.
In an instruction favouring NRI taxpayers based in the UK, the foreign tax division of the ministry of finance has directed the assessing officers not to collect taxes from such tax payers, if an appeal against the tax demand is pending before the respective competent authority. The ministry of finance has issued the instruction - No 3 of '04 - after several NRIs based in the UK apprised the ministry of the difficulties they faced when the Indian I-T department started pressing for collection despite the fact that the matter is being heard at MAP, an alternative dispute resolving mechanism provided under the tax treaty between both the countries.
The ministry of finance note further stated that a memorandum of understanding has been signed between competent authorities of India and the UK regarding suspension of tax collection during the pendancy of the MAP. However, this memorandum of understanding is applicable to only those who are covered by the Double Taxation Avoidance Agreement (DTAA) between India and the UK.
TP Ostwal, senior tax consultant in Mumbai said, "The Indian tax authorities should sign such MoU for the benefit of non-residents based in other countries like the US, France, Japan, Spain etc. It will be a great relief to the non-resident taxpayers as they know what they can expect."
In the instruction No 3 of '04, the Foreign tax Division has directed the assessing officers not to collect tax from such taxpayers, provided the taxpayer has invoked MAP through the competent authority of the UK and the same has been admitted by the Indian competent authority.
The instruction further directed the assessing officers to treat the bank guarantee as sufficient arrangement for facilitating extension of time limit for payment of tax. The extension will be allowed only until the matter is pending before the MAP.
In case the competent authority agrees that there is no resolution possible, the assessing officer is entitled to invoke the bank guarantee if the tax payer fails to pay the demand. If a resolution of the dispute is arrived at by the competent authorities the assessing officer can issue a fresh demand notice and recover the tax.
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