The Central Board of Direct Taxes (CBDT), the apex direct tax body, has reportedly launched a thorough investigation into high-value foreign remittances exceeding Rs 600,000. The move is aimed at detecting discrepancies in remittance data and potentially uncovering cases of tax evasion.
Essentially, the CBDT examines financial transactions to ensure that individuals and businesses accurately declare their income and pay the correct amount of tax. By examining these high-value foreign remittances, tax authorities hope to identify any discrepancies between the declared income and the money sent abroad.
Tax authorities are focusing on identifying individuals and businesses that may have unreported income based on discrepancies in data in Form 15CC, a quarterly disclosure statement filed by authorized dealers with the income tax department.
Key points:
- Data Collection: CBDT has been collecting Form 15CC data since 2016.
- Verification process: Tax officials are now initiating a detailed analysis of this data to identify possible discrepancies.
- Focus on high-value remittances: Scrutiny will primarily focus on transactions exceeding Rs 600,000.
The measure will help the government identify cases in which a remittance was sent but was not declared by the taxpayer in his or her tax return.
Mode of operation:
- The CBDT will create a list of suspected cases based on data from 2020-21 onwards.
- Tax officials must develop a detailed standard operating procedure to identify high-risk cases by September 30.
- The government plans to send notices to suspected tax evaders before December 31.
How to fill gaps in Form 15CC: Form 15CC is a self-declaration form submitted by individuals or entities that send remittances abroad. It certifies that the remittance does not constitute taxable income and, therefore, no additional documentation is required.
This provision was introduced to streamline the remittance process for legitimate transactions such as:
- Importer Payments: Companies that import goods or services often make payments abroad.
- Transactions between affiliated companies: Corporate entities may transfer funds to their overseas subsidiaries.
- Loans to Non-Residents: Individuals or companies can provide loans to entities outside India.
However, recent scrutiny by the CBDT suggests that some taxpayers are misusing this provision. By breaking up large remittances into smaller amounts below the Rs 700,000 threshold, individuals and businesses are trying to evade the mandatory 20% Tax Collected at Source (TCS).
A tax official was quoted by the Economic Times as saying that an individual with a declared annual income of Rs 5 lakh was found to have sent Rs 15 lakh abroad in the last three years, using three different distributors so as not to attract the mandatory TCS and escape the tax net.
Improved reporting by banks
Banks are now required to report total foreign currency (forex) expenses as a separate category, irrespective of TCS collection.
This data is incorporated into the annual income tax return used for tax assessment.
Increase in TCS on foreign remittances:
The government has increased the TCS on foreign remittances under the Liberalised Remittance Scheme (LRS) from 5% to 20% in October 2023.
Budget 2023 also brought international credit card payments under the LRS umbrella, making them subject to TCS.
These measures demonstrate the government’s commitment to strengthening tax compliance and deterring tax evasion through foreign remittances.
First published: August 13, 2024 | 12:29 pm IS
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