Money transferred more than Rs 6 lakh abroad? You may get a tax notice by December 31, 2024

Highlighting the scale of the discrepancy in reporting, an official said an individual with a declared annual income of Rs 5 lakh has been found to have sent Rs 15 lakh abroad in the last three years using three different dealers so that these transactions do not attract the mandatory Tax Collected at Source (TCS).

Which data is the tax department using for analysing the mismatch in reporting of foreign remittance transactions?

According to the news report cited earlier, the income tax department has asked its field formations to start verifying and scrutinising Form 15CC data for analysis.

“Form 15CC is used for reporting information related to remittances sent outside India. It is used by an authorised dealer (such as a bank) to report remittances made to a non-resident or a foreign entity under the Liberalised Remittance Scheme (LRS) or other similar schemes. Form 15CC is required to be furnished electronically within 15 days from the end of the quarter of the financial year to which such statement relates,” says  a CA.

The tax department means by analyzing Form 15CC data the quarterly information filed by banks with respect to the overseas foreign remittances declared in Form 15CC by the AD bankers are being analysed to see if the taxpayers have appropriately reported the money’s transferred in their tax returns. The details of outward remittance are captured in the Annual Information Statement (‘AIS’). “This data is collected either through Specified Financial Transaction, Form 15CC or TCS returns where TCS is collected.

How far back may the tax department go to issue you a notice for foreign remittance and under which section?

Tax officials have confirmed that Form 15CC data is available for 2016 onwards in a manner that will enable the department to analyse it.

Experts say it is difficult to tell under which section the tax department can send you a notice for such a mismatch of data relating to foreign remittance. Since there is no express circular or notification pertaining to the issue of such notice, clarity pertaining to the same is awaited. According to experts the tax law provides various avenues for the tax department to send tax notices. In general, they can trigger notice either under section 131 (1A) – Power regarding discovery, production of evidence, etc., or 133- Power to call for information. They can analyse the information and further initiate other sections of the tax law for tax assessments. For example, after calling for information (section 133), they can issue notices under section 142(1)-Inquiry before assessment. Further, the tax department can issue notice under section 143(2) of the Act for thorough scrutiny.

In case you do not comply with the directions issued by these notices, the concerned Assessing Officer can levy a penalty for your lack of response. For example, Section 133 (6), notices may be sent to any taxpayer who filed suspicious ITRs. Section 133 (6) empowers the income tax department to order taxpayers to furnish information and evidence for tax-related inquiries and proceedings.

If the tax department decides to send a re-assessment notice under sections 148A and 148, then the maximum time limit to do so is three years and three months from the end of the relevant assessment year for section 148 and three years for section 148A if the income which escaped assessment is below Rs 50 lakh. If it’s more than Rs 50 lakh then the time limit is five years (section 148) and five years three months (section 148A). So in high risk cases where the information pertaining to Foreign outward remittances exceeding Rs 50 lakh or more are identified for relevant assessment year wherein the said remittances are made without deducting tax at source by the Remitter, then it is possible that the Tax authorities may reopen the case for that year respect of the Remitter considering the said expenditure considered without deducting tax at source.

What should you do?

It seems that the government has observed mismatches in income declared in the ITR as against the foreign spends reflecting in the AIS.

He adds that the government is tracking and analysing this data (AIS, Form 15CC, SFT, TCS, TDS, and other sources) to uncover potential instances of taxpayer underreporting of income. The data collection will enable the tax department to issue notices to taxpayers to correctly assess their income and identify cases of tax evasion. Individuals having large foreign spends can expect closer examination by the tax department. Thus, it is advisable for individuals to maintain adequate documentation for their remittances and source of funds. If discrepancies in income reported are found, the taxpayer may be exposed to additional tax demand, interest and penalty and even prosecution.

Is TDS or TCS deducted from foreign remittances?

Under section 195, TDS must be deducted for payments made to non-residents. Moreover, under section 206C(1G), TCS must be collected from residents on certain foreign remittance transactions under the Liberalised Remittance Scheme (LRS) or any similar scheme.

When TDS and TCS provisions are applicable for foreign remittances:

• TDS: Section 195 deals with the tax deduction at source on payments made to non-residents. This includes any income, whether in the form of interest, royalty, technical fees, or any other income that is taxable or deemed taxable under the IT Act.
• TCS: Section 206C(1G) pertains explicitly to the collection of tax at source (TCS) on the remittance of foreign exchange under the Liberalised Remittance Scheme (LRS) or any other similar scheme.

If a foreign remittance is not taxable in India, TDS may not apply, but TCS may still be relevant depending on the nature of the transaction. Another thing to note is that the foreign remittance itself may not be subject to TDS if it’s not a taxable income or if it’s not related to any specific service or income sourced from India. However, if the foreign remittance includes income that is taxable in India, then TDS will apply.

Rule 37BB specifically provides no information is required to be furnished for any sum which is not chargeable to tax in India and such remittance is in nature of certain specified remittances like S0001 (Indian investment abroad – in equity capital (shares), S0303 (Travel for pilgrimage), S0305 (Travel for education (including fees, hostel expenses, etc.), S0005 (Indian investment abroad – in real estate), etc.

Some experts claim that TCS is deductible in accordance under Section 206C (1G) even if such remittance is not taxable in India and the deductor certifies in Form 15CA accordingly. Even in cases where the foreign remittance is not taxable in India, if such foreign payment falls under the Liberalised Remittance Scheme (‘LRS’), then with effect from October 1, 2023, TCS at the rate of 20% shall be applicable on it if the aggregate sum exceeds Rs 7 lakh, except in case of student loan for studies abroad where the TCS is 0.5% and LRS for medical treatment abroad, where the TCS rate is 5%.

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