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Rich Indians probed by tax office over buying foreign insurance policiesThe Fema violation is triggered when life insurance is bought from a foreign policy company and is not authorised from RBI
DH Web Desk
Last Updated IST
Representative image. Credit: iStock Photo
Representative image. Credit: iStock Photo

Several wealthy Indian families, most of them belonging to the diamond business communities are being probed by the tax office as to why their names are featured in insurance policies by foreign-based companies. These policies often run into millions of dollars and there are allegations that these individuals have not disclosed the details of their nominations in foreign life policies or bought these policies without informing the Reserve Bank of India (RBI),a report in The Economic Times said.

Under section 131 of the Income Tax Act, these individuals have been served summons by IT authorities, the report said. They have reportedly failed to disclose the information regarding these foreign bought policies as mandated by the tax law.

So far, the officials have mostly received information regarding these overseas policies under the aegis of information-sharing pact between India and the policy-holding countries. Apart from that, now foreign insurance policy companies have also started sharing the information on such insured individuals and nominees who have listed Indian addresses.

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"The probe is to ascertain whether this was due to negligence or was deliberate and amounts to a violation of Foreign Exchange Management Act (FEMA). Based on the investigation, cases could also be referred under the Black Money Act provided it is above the permissible threshold, " ET quoted an official saying.

The law mandates that even if an individual has not purchased a policy from any of these insurance companies abroad and are only named as a nominee, they are expected to provide details of the same in their Income Tax returns (ITR) documents filed.

"Schedule FA for reporting of offshore assets and incomes was introduced from assessment year 2012-13. Since its introduction, there have been regular changes in the reporting requirements with additional requirements being added on a year-to-year basis. 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," Ashish Mehta of Khaitan & Co told the publication.

The Fema violation is triggered when life insurance is bought from a foreign policy company and is not authorised from the central bank, ie RBI.

The report also mentioned that purchase of such large life insurance covers from foreign companies have increased ever since the pandemic.

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(Published 19 January 2023, 18:05 IST)