Sending money abroad? Why your transaction could draw tax scrutiny

The Income Tax Department is verifying 394 entities over suspicious overseas remittances, with mismatches in income, turnover and payment purpose raising red flags

The Income Tax Department’s crackdown on suspicious overseas remittances should be noted by businesses and individuals sending money. They should be able to establish the purpose, source and tax treatment of the payment through proper documentation.

 

The department on August 18 launched a nationwide field verification exercise covering around 394 entities, including 117 located in states along India’s land borders, and 36 professionals who issued remittance certificates, according to a PTI report citing the Central Board of Direct Taxes (CBDT).

 

The exercise followed an earlier search operation that uncovered a network of entities and fictitious charitable trusts allegedly involved in providing accommodation entries against bogus donations. Preliminary verification found that some entities sending money abroad were either non-filers or had reported very small turnover compared with the amounts being remitted, PTI reported.

 

 

The department also found that some entities were not operating from their declared addresses, while a relatively small group of professionals had issued a large number of Form 15CB certificates. The CBDT questioned whether adequate due diligence had been carried out before these certificates were issued, PTI reported.

 

Why a genuine remittance can still attract scrutiny

A mismatch between declared income or turnover and the amount sent overseas does not automatically mean that a transaction is illegal. But it can become a red flag requiring the taxpayer to explain the source and purpose of the funds.

 

Parag Jain, chartered accountant and Tax Head at 1 Finance, explained this through the example of an architecture professional with annual turnover of Rs 62 lakh who sends Rs 1.1 crore abroad to purchase a perpetual licence for building design and simulation software.

 

The transaction could be legitimate if it is funded, for example, through a loan against commercial property. However, the size of the remittance compared with the business’s turnover could attract attention in a data-driven tax review.

 

“In a data-driven review, legitimacy that cannot be documented quickly looks the same as evasion,” Jain said.

 

In such a case, the taxpayer should be able to produce the loan sanction letter, licence agreement, vendor invoice and relevant remittance certificate to establish the transaction trail, he added.

 

Chandni Anandan, chartered accountant and tax expert at ClearTax, said an outward remittance may also be questioned when it does not reconcile with the taxpayer’s declared income or appears to arise from a capital transaction or exempt income without adequate supporting evidence.

 

“A clear banking trail, a gift deed from a specified relative where the remittance is funded by a gift, and proper documentation of the source are what close the matter if a notice arrives,” Anandan said.

 

Documents taxpayers should keep ready

 

For a genuine outward remittance, experts said the paperwork should establish three basic things: Why the money is being sent, to whom it is being sent and how the payment should be taxed.

 

Jain said taxpayers should keep the underlying commercial document, such as an invoice, contract or agreement, along with the recipient’s Tax Residency Certificate (TRC) where treaty benefits are claimed.

 

Under the Income Tax Act, 2025 and Income Tax Rules, 2026, Jain said Form 146 has replaced Form 15CB and Form 145 has replaced Form 15CA from April 1, 2026, with Form 146 required for applicable taxable payments to non-residents crossing Rs 5 lakh in a financial year.

 

Anandan said Form A2 is required for most outward remittances, other than specified import and intermediary-trade transactions, while the correct purpose code is critical. For overseas investments, prescribed declarations are required, while individuals remitting under the Liberalised Remittance Scheme need to provide the applicable self-declaration.

 

Taxpayers must also ensure that the applicable tax deduction and collection requirements are met, she said.

 

The CA certificate is not just paperwork

 

The tax department’s focus on professionals issuing remittance certificates also puts the spotlight on the role of chartered accountants.

 

Nishant Shanker, Tax Controversy & Dispute Resolution, Navraj Global Advisors, said a taxpayer should establish the purpose, recipient, amount and taxability of the payment before remitting the money and maintain the underlying agreement, invoice, bank details and supporting correspondence.

 

Where a CA certificate is required, the professional is not merely filling in a form. “Form 15CB is not a formality,” Shanker said, adding that the CA is certifying the nature and taxability of the remittance and the applicable TDS position.

 

Jain said taxpayers should ask whether the CA examined the underlying contract, checked the recipient’s TRC where a treaty rate was claimed and provided a written basis for the tax position.

 

A certificate issued without examining the underlying transaction can create problems for both sides. The taxpayer could face tax demands, interest, penalties and further scrutiny, while the accountant could face separate professional consequences, Shanker said.

 

Red flags tax authorities may look for

Experts said no single indicator proves that a remittance is suspicious. However, multiple inconsistencies can increase the likelihood of scrutiny.

 

These include:

 

Large overseas payments compared with declared turnover or income

 

Non-filing taxpayers or entities reporting negligible income

 

Vague descriptions of services or payments that do not fit the business

 

Newly incorporated or apparently inactive entities making large transfers

 

Missing contracts, invoices or payment trails

 

Payments to concentrated or unrelated groups of overseas recipients

 

Circular movement of funds

 

Incorrect purpose codes or TDS treatment

 

A small group of professionals issuing an unusually high number of certificates

 

Jain said geography is also relevant to the department’s current exercise, with entities in districts along India’s land borders making significant foreign remittances specifically covered.

 

For ordinary taxpayers and businesses, however, the key takeaway is straightforward: a large or unusual remittance is not necessarily a problem, but the transaction should be economically explainable and properly documented.

 

As Shanker put it, a company reporting turnover of Rs 30 lakh but remitting Rs 3 crore overseas may have a legitimate explanation, such as fresh funding or a one-off investment. But the mismatch gives the tax authorities a reason to ask where the money came from, what it was used for and whether the underlying transaction actually existed.