A joint account held with one’s partner has been an accepted mode of holding investments, together with financial institution accounts, and aids in operation of the account or funding or facilitates switch of investments to the partner within the occasion of the investor’s dying. Nevertheless, in current months, a brand new dimension of tax danger has emerged for joint holders.
It has been nicely settled below tax legal guidelines that even when investments are held in joint names together with a partner, the funding and the earnings therefrom can be thought to be belonging to the primary named holder. There was no tax influence on the joint holder in such circumstances. It was provided that the joint holder contributed in the direction of the price of the funding, that, for tax functions, the investments can be thought to be being held collectively by each within the ratio of their respective contributions in the direction of the price of the funding.
Prior to now few months, there have been many tax reassessments initiated in opposition to joint holders for earlier years during which investments have been made, with out enough alternative of rationalization of the supply of such investments being permitted to them. Submitting of a writ petition in opposition to such notices is commonly not an possibility, given the excessive price of litigation in India. Such reassessment proceedings then necessitate hiring the providers of a tax skilled conversant with the reassessment procedures, which makes it an costly and time consuming affair.
Tax authorities have been looking for to tally the PAN-wise info acquired about investments made throughout every year by the Specified Monetary Transaction (SFT) statements, with info disclosed in earnings tax returns. The data accommodates names of each the primary named holder in addition to the joint holder. Reassessment notices have been issued to joint holders on the premise of such SFT statements, the place such tax returns haven’t been filed.
In case of joint holders whose identify is added just for comfort, typically, the joint holder has hardly any taxable earnings, and subsequently just isn’t required to file a tax return, and has accordingly not filed a tax return. Many of those joint holders are non-residents, who’ve solely an abroad handle. In lots of circumstances, the joint holders’ e mail or phone numbers will not be registered with the earnings tax division, since they haven’t been submitting tax returns in India. The joint holder, in such circumstances, don’t obtain the preliminary tax discover proposing reassessment and has subsequently not been ready to answer the tax discover in any respect.
Ought to the tax authorities not give attention to the primary named holder alone, and the place the primary named holder doesn’t reply, provoke proceedings in opposition to him? Within the uncommon circumstances the place he intimates that the funding doesn’t belong to him, however to the joint holder, then after all, the tax authorities can positively provoke proceedings in opposition to the joint holder.
Second, and extra importantly, ought to reassessment notices be issued in such a routine method with out resorting to simpler technique of verification? There’s a course of for on-line verification of SFT transactions, the place one can simply click on on the hyperlink despatched by tax authorities, and agree, disagree or partly disagree with the SFT info. This must be the norm. If notices are to be despatched in bodily type, they need to take into consideration the time taken for supply of such notices, significantly to abroad addresses, whereas giving time to answer. This can save useful time and efforts of each tax authorities and buyers.
In many of the circumstances, after losing substantial time, effort and cash of each the tax division and taxpayers, a conclusion is reached in reassessment proceedings that no tax is payable by the joint holder, because the funding has been made by the primary named holder out of his disclosed funds or out of remittance comprised of his abroad funds.
What objective does such an unfruitful train of reassessment serve? A greater, unobtrusive and value efficient technique of observe up on such SFT info, as an alternative of challenge of mass notices for reassessment, actually must be thought of by the tax authorities.
Gautam Nayak is associate at CNK & Associates LLP.