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UPDATE 1-India seeks possible U.S. tax violations as stand hardens in diplomat row

Sanjeev Miglani
Friday, 27 Dec 2013 | 10:54 AM ET

diplomat row@ (Adds background)

NEW DELHI, Dec 27 (Reuters) - India has sought details about staff in American schools in the country for possible tax violations and revoked ID cards of U.S. consular officials and their families, retaliatory steps for the arrest of an Indian diplomat in New York.

The measures suggest that the two countries are no closer to a resolution of a diplomatic dispute over the treatment of Deputy Consul General Devyani Khobragade this month on charges of visa fraud and underpayment of her housekeeper.

Khobragade, who has denied the charges, was handcuffed and strip-searched while in custody, sparking outrage in India.

An Indian government official said on Friday that New Delhi had asked the U.S. embassy to provide details about people working in American schools and other U.S. government facilities to determine if they had permission to do so and if they were paying taxes that are mandatory under Indian law.

Diplomats' spouses who take up work in schools or other embassy facilities are supposed to inform the host country.

Violations of this kind had often been ignored, but now India would not turn a blind eye, the official said, speaking on condition of anonymity.

The U.S. embassy declined to comment on the latest steps.

India had also withdrawn some privileges U.S. diplomats and their families enjoy and would treat them as Indian officials are treated in the United States, the Indian official said.

U.S. Ambassador Nancy Powell has been refused special privileges at New Delhi airport.

"We have said all access is on a reciprocal basis," the government official said. "She is not going to get the benefits that the Indian ambassador in the U.S. doesn't get."

U.S. consular officials and their families have been asked to surrender identity cards that gave them a degree of immunity. Under a new regime, consular officials - but not their families - will be given identity cards with fewer privileges.

"Spouses and children have no more immunity. So if there is a parking offence or ... something else happening in Bangalore etcetera, they would be held liable," the Indian official said.

Khobragade was released in New York on $250,000 bail after giving up her passport and pleading not guilty to visa fraud and making false statements about how much she paid her Indian housekeeper. She faces a maximum of 15 years in prison if convicted on both counts.

U.S. Secretary of State John Kerry expressed regret over the case in a phone call to India's national security adviser last week, but India is still demanding that the charges be dropped and that the United States apologises. U.S. prosecutors have defended the investigation against Khobragade and her treatment. Before this diplomatic blowup, U.S.-Indian relations were seen as cordial and improving.

In a new twist, India now argues that Khobragade was accredited to the United Nations at the time of her detention, giving her immunity from arrest.

She was temporarily moved to India's U.N. mission in August to help with the workload ahead of the General Assembly session and a visit by the prime minister. A copy of her accreditation, made available to Reuters, lists her as an adviser for a period from Aug. 26 until Dec. 31.

"At no stage we were told by the U.S. side what was going on. We were kept in the dark. A lot of these things could have come out had we been informed then," the official said, explaining that India had not been warned she might be arrested.

He said that even when Khobragade was posted to Islamabad she had not encountered such treatment, despite the hostility between India and Pakistan.

(Editing by John Chalmers, Nick Macfie and Phil Berlowitz)