The Central Board of Direct Taxes (CBDT), the top direct tax body, has reportedly initiated a thorough investigation into high-value foreign remittances exceeding Rs 6 lakh. This move is aimed at detecting discrepancies in remittance data and potentially uncovering instances of tax evasion.
Essentially, the CBDT is examining financial transactions to ensure that individuals and businesses are accurately reporting their income and paying the correct amount of taxes. By scrutinizing these high-value foreign remittances, the tax authorities hope to identify any discrepancies between declared income and money sent overseas.
The tax authorities are focusing on identifying individuals and businesses that may have undeclared income based on discrepancies in Form 15CC data, a quarterly disclosure statement filed by authorized dealers with the income tax department.
Key points:
- Data Collection: The CBDT has been gathering Form 15CC data since 2016.
- Verification Process: Tax officials are now commencing a detailed analysis of this data to identify potential discrepancies.
- Focus on High-Value Remittances: The scrutiny will primarily target transactions exceeding Rs 6 lakh.
The move will help the government to identify cases where the remittance was sent but was not reported by the taxpayer in their filling.
Modus Operandi:
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- The CBDT will create a list of suspicious cases based on data from 2020-21 onwards.
- Tax officials must develop a detailed SOP to identify high-risk cases by September 30.
- The government plans to send notices to suspected tax evaders by December 31.
Addressing Loopholes in Form 15CC: Form 15CC is a self-declaration form submitted by individuals or entities making foreign remittances. It certifies that the remittance is not taxable income and, therefore, no further documentation is required.
This provision was introduced to streamline the remittance process for legitimate transactions such as:
- Payments by importers: Businesses importing goods or services often make foreign payments.
- Company-to-subsidiary transactions: Corporate entities may transfer funds to their overseas subsidiaries.
- Loans to non-residents: Individuals or businesses might provide loans to entities outside India.
However, the CBDT's recent scrutiny suggests that this provision is being misused by some taxpayers. By dividing large remittances into smaller amounts below the Rs 7 lakh threshold, individuals and businesses are attempting to evade the mandatory 20% Tax Collected at Source (TCS).
A tax official was quoted by Economic Times as saying that an individual with declared annual income of Rs 5 lakh was found to have sent Rs 15 lakh abroad in the last three years, using three different dealers so that it will not attract mandatory TCS and escape the tax net.
Enhanced reporting by banks
Banks are now required to report total foreign exchange (forex) spends as a separate category, regardless of TCS collection.
This data gets incorporated into the annual income statement used for tax assessment.
Increased TCS on Foreign Remittances:
The government raised the TCS on foreign remittances under the Liberalised Remittance Scheme (LRS) from 5% to 20% in October 2023.
The 2023 budget 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.