Tax Office Targets Wealthy Indians with Undisclosed Life Insurance Policies

Wealthy Indians, some of whom are involved in the diamond industry, have been summoned by the tax office to explain why their names are linked to life insurance policies worth millions of dollars. The tax authority has received information about these policies from foreign insurance companies and is investigating whether the individuals have properly disclosed them in their tax returns. The move is part of a broader effort to crack down on tax evasion and uncover hidden wealth.

Key Takeaways:

The tax office has issued summons to wealthy Indians under section 131 of the Income Tax Act to explain why their names are linked to foreign life insurance policies worth millions of dollars.
The individuals either did not disclose that they were nominees in foreign life policies or purchased life insurance from an offshore company without the permission of the Reserve Bank of India.
The tax authority has received information about the policies from foreign insurance companies, which have begun sharing data on policy nominees with Indian addresses.
The tax official said that the probe is to ascertain whether the failure to disclose the policies was due to negligence or deliberate and amounts to a violation of Fema.
The Foreign Exchange Management Act (Fema) is triggered when life insurance is bought from a foreign company without obtaining an authorization from the central bank.
The interest on large overseas life covers has increased since the pandemic, with officials in the wealth management business saying that it has sharply increased.
The I-T department has received information from various countries under the annual automatic information exchange arrangement, and cases with discrepancies between tax returns and the information received will be taken up by field officers.

Statistics:

Assessment year 2012-13 was when the Schedule FA for reporting of offshore assets and incomes was introduced.
Specific requirements to report foreign insurance policies were introduced in the returns for assessment year 2019-20.
One needs to report details such as basic details of the insurance company, cash surrender value, and premium paid during a reporting period.
The ₹5-lakh threshold amount is generally applicable to overseas bank accounts, but it's unclear how the threshold would be determined for insurance policies.
The Reserve Bank of India's (RBI) liberalised remittance scheme (LRS) allows a resident to invest up to $250,000 a year in stocks, bonds, properties, and debt mutual funds.

Sources:

ET, a tax official, and "for more than one lakh assesses"
ET, Ashish Mehta of Khaitan & Co, a law firm
ET, a tax official
timescontent.com, the article does not contain sources within its content