Maintain proper documents proving source of funds remitted abroad

Have transparent reasons for each transfer and use reputable service providers in order to avoid scrunity

According to a recent media report, 89 foreign remittance cases have come under the taxman’s lens for suspected tax evasion. With Indians increasingly remitting money abroad under the liberalised remittance scheme (LRS) for various purposes, including children’s education, purchase of property, and medical treatment, many transactions have now come under scrutiny for potential tax fraud.

Ankit Jain, partner, Ved Jain & Associates, says, “Technological advancements allow the tax authorities to quickly and efficiently process large volumes of data and identify suspicious transactions that may point towards tax evasion or fraud.”

The government can capture data at various points, such as from banks, financial institutions, and even the forms 15CA/CB uploaded by the remitters themselves. Sandeep Bajaj, managing partner, PSL Advocates & Solicitors, says, “Taxpayers must stay compliant with Indian tax laws and the Foreign Exchange Management Act (FEMA) regulations.”

Next, let us turn to the circumstances under which people usually come under the taxman’s lens.

Income-remittance mismatch: A person can come under the taxman’s lens if a tax return is not filed or if there is a mismatch between the income declared and the amount remitted. Nikhil Varma, managing partner, MVAC, says, “If an individual declares a very low income but remits a substantial amount abroad, it may raise red flags and lead to scrutiny.”

Non-disclosure of offshore assets/income: Non-disclosure of foreign assets in tax return can result in stringent measures under the black money law, along with income-tax proceedings.

Indians are increasingly acquiring offshore assets without fully understanding the reporting obligations that come with such purchases. Sumit Mangal, partner, Luthra and Luthra Law Offices India, says, “Tax authorities are receiving a lot of information from various countries under automatic exchange of information. They are sending notices to people who have made large foreign remittances or acquired foreign assets but failed to report the overseas income or offshore assets.”

Tax Deducted at Source (TDS): Sometimes the transaction is investigated because the resident Indian who participated in the transaction did not deduct the appropriate TDS or did not submit the appropriate documentation. Jain says, “While buying a property from a non-resident Indian, one is supposed to deduct a higher amount of tax than the 1 per cent applicable to domestic sellers. If the buyer remits the money without deducting the higher amount of tax, the taxman will ask him to pay the shortfall.”

Documentation issues: Sometimes remittance certificates are an issue. Mangal says, “Taxpayers are required to get a certificate for foreign remittances. At times, the description provided in these certificates is not proper or complete.”

Cryptocurrency transactions: Expect the taxman to investigate transactions related to cryptocurrencies with greater vigour in the future. Jain says, “If money is remitted to cryptocurrency exchanges outside India, the taxman can knock on the door at a later date to see if appropriate tax is being paid on the income from such investments.”

Precautions you should take

People remitting money abroad should exercise a number of precautions to avoid coming under scrutiny. Adhere to the limits on foreign remittances and provide a transparent reason for remitting the funds.

Stick to a reputable financial institution or money transfer service provider, which is likely to be compliant with the relevant laws and regulations. Naveen Wadhwa, deputy general manager, Taxmann, advises individuals to ensure that remittances happen through legitimate channels, due taxes are deducted, an equalisation levy is paid, and proper documents are maintained and reported to the relevant authorities.

Use the right forms. Jain says, “Submit Form 15CA or 15CB wherever required.”

If asked to, you should be able to demonstrate the source from which the remitted amount was obtained. Pallav Pradyumn Narang, partner, CNK, says, “To avoid questions and possible penal action by the tax authorities, maintain proper documentation regarding the source of funds, if not the nature of the income.” And to prevent exceeding the annual LRS limit or being subjected to TCS (tax collection at source), avoid remitting money on behalf of relatives.

Finally, Bajaj suggests that to ensure compliance and avoid penalties and criminal charges, one should conduct thorough due diligence and seek professional advice if necessary.
 

Demystifying Form 15CA and Form 15CB

Form 15CA

. Form 15CA has to be filled by all persons remitting money outside India

. It has to be filled when remitting money for purposes such as travel, education, medical treatment, or other expenses

. It has to be filled each time money is remitted, before the amount is remitted

. It can be submitted in online and offline mode

. Registered users can file Form 15CA through the e-filing portal

Form 15CB

. Form 15CB is a certificate issued by a chartered accountant stating that the remittance made is in compliance with Indian tax laws and regulations

. The taxpayer must provide Form 15CA to the chartered accountant for the latter to certify the details in Form 15CB