The Central Board of Direct Taxes (CBDT) has reportedly launched a probe into foreign remittances exceeding Rs 6 lakh in a bid to unearth tax evasions. The tax authorities are scrutinising these high-value transactions to ensure the accuracy of income reporting by individuals and companies.
“This probe into outbound remittances reflects the government’s priority to ensure compliance and prevent tax evasion. Reports indicate that the initiative arose following instances where foreign exchange remittances did not match individual declarations and tax collection at source (TCS),” says Varun Chablani, an international tax lawyer.
Notices to be sent
Under the Liberalised Remittance Scheme (LRS), a 20 per cent tax collected at source (TCS) is levied, and individuals are also required to disclose their source of income.
“Individuals who send more than Rs 600,000 abroad may receive notices to justify the source and confirm correct payment of taxes,” says Alay Razvi, partner at Accord Juris.
Tax officials will examine Form 15CC.
“Field formations have been instructed to verify Form 15CC, a quarterly disclosure statement detailing these remittances, which has been collected since 2016. The aim is to create a list of high-risk cases based on data from the 2020-21 financial year onwards, with a deadline for initial notices to be issued to those with undeclared income by December 31,” says Kunal Savani, partner at Cyril Amarchand Mangaldas.
‘Jugaad’ can cause you problems
Authorized dealer banks currently charge TCS on remittances above Rs 7 lakh.
“However, some taxpayers are using multiple banks to avoid TCS. The CBDT aims to analyse Form 15CC data to detect those who are evading TCS and not declaring proper income,” says Savani.
The Annual Information Declaration (DIA) records various financial transactions, including expenses abroad and remittances.
“A discrepancy between the data declared in the Income Tax Return (ITR) and the AIS data can lead to the tax department pointing out the discrepancy and asking for an explanation,” says Devansh Jain, Senior Associate, PSL Advocates & Solicitors.
What should you do?
Maintain detailed records of foreign remittances, including purpose, amount and beneficiary details.
“Keep receipts, invoices, bank statements and other relevant documents to corroborate your reported income and expenses,” says Jain.
To avoid scrutiny or penalties, accurately report all foreign transactions so they match the tax authorities’ records. “Declare all sources of income accurately on your tax returns,” says Ritika Nayyar, partner at Singhania & Co.
Savan advises taxpayers to avoid splitting payments across multiple banks to avoid TCS.
For those who have travelled abroad and used their credit card, debit card or forex, purchased goods or services from foreign websites, sent remittances abroad or purchased foreign currency, Jain recommends that they reconcile the data captured in their Annual Information Return (AIS) with their actual transactions.
Nayyar recommends consulting a tax professional if you are unsure about the process. Take the matter seriously, as discrepancies can lead to tax claims, penalties or legal action.
Purchases of foreign currency: Transactions totalling Rs 10 lakh or more in a year are reported through SFT
International credit cards: Exempt from TCS; banks report all LRS-related remittances even if no TCS is charged
International Debit Cards/Forex: Transactions under LRS, with TCS at 5% for medical/educational cases and 20% for other cases above Rs 7 lakh per annum
First published: August 20, 2024 | 7:00 pm IS
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