Sent large chunk of money overseas? How to ensure you don't get tax notice

The income tax department aims to detect discrepancies between declared income and foreign remittances, which could indicate potential tax evasion.

The Income Tax Department has intensified its scrutiny of individuals who have sent significant amounts of money abroad.

 The department is closely examining Form 15CC, a quarterly disclosure statement filed by Authorised Dealer (AD) Banks for outward remittances as  inconsistencies between declared income and foreign remittances have been observed, raising questions about potential tax evasion. Issues with tax collected at source ( TCS) on outward remittances have also been identified.

""Foreign remittances are made through an authorised dealer bank. The authorised dealer is required to furnish a quarterly statement with the tax authorities in respect of all such remittances undertaken by such dealer in Form 15CC under Rule 37BB of the Income-tax Rules, 1962. On the other hand, a taxpayer making foreign remittances is accordingly disclosed the same in the information filed under the Annual Information Statement (“AIS”). It is being seen that the tax department is relying on the information filed under Form 15CC and scrutinizing the income declared in the income tax return to detect any discrepancies between the two," said S. R. Patnaik, Partner (Head - Taxation), Cyril Amarchand Mangaldas.

You may receive a notice from the Income Tax Department in India for sending money abroad if:

 Under the Liberalised Remittance Scheme (LRS), Indian residents can remit up to Rs 250,000 per financial year without any additional tax. If you sent more than this limit, you may receive a notice to explain the reason for the remittance.

" In case your income declared in the income tax return is significantly lower/ disproportionate than the foreign remittances declared in Form 15CC by the authorized dealer bank(s), it is possible for the tax authorities to issue a notice explaining the reasons for such mismatch," said Patnaik.

The LRS allows remittances for various purposes, including education, travel, maintenance of close relatives abroad, and investments. If your remittance was for a purpose not permitted under the LRS, you may face scrutiny from the tax authorities.

You did not declare the remittance in your income tax return: All foreign remittances must be declared in your income tax return. Failure to do so may result in a notice from the Income Tax Department.

The tax authorities suspect tax evasion: If the Income Tax Department believes you may have evaded taxes through foreign remittances, they may issue a notice to investigate your transactions.

"Individuals who have sent more than Rs 6 lakh abroad might face increased scrutiny from the Income Tax department. If the department finds discrepancies between the information reported in Form 15CC, the declared income in the ITR and the amount remitted, they might issue notices demanding explanations or additional documentation. This can happen due to overstated or understated remittance amounts, inaccurate remittance details, non-submission or late submission of Form 15CC, discrepancies between declared income and foreign bank account balances, or suspicious transactions," said Ritika Nayyar, Partner, Singhania & Co.

 For example, if you forgot to declare foreign income in your ITR or made frequent small remittances without a clear explanation, you might receive a notice.

 It's essential to maintain proper records of all outward remittances and ensure that they are accurately reflected in tax returns. It's important to respond promptly and provide accurate information to avoid further complications. 

 While the specific section under which the notice is issued may vary, the income tax department generally has the authority to go back up to 6 years to assess and reassess income related to foreign remittances.

The exact section under which notice can be sent is not certain. However, the income tax department can start off by requiring you to furnish information under section 133. Depending on the lack of substantiation or comfort on reported / declared incomes, the department can further give notice under section 143 for scrutiny assessment (if it is within the time allowed under that section) or under section 148 for reassessment. 

"It is pertinent to note that such notices under section 148 cannot be issued beyond a period of 6 years from the end of the relevant financial year. Hence, it can be assumed that the tax department may go back for a maximum period of 6 years. Similarly, for TDS and TCS related assessment too, the tax department may go back for a maximum of 6 financial years," said Patnaik.

Is TDS or TCS deducted from foreign remittances?

TDS and TCS can both be applicable to foreign remittances. TDS primarily applies to payments made to non-residents for taxable income, while TCS is mandated for remittances under the Liberalised Remittance Scheme (LRS). 

"They both require prescribed forms to be filed with the tax authorities before making the payment/ incurring expenditures. The rate of TDS may vary based on the type of income and the recipient's country. The rate of TCS may vary based on the purpose of the remittance.  The taxability of the income or remittance, as well as the nature of the remittance, are key factors in determining the applicable tax and its rate. Ensuring compliance with TDS and TCS regulations is essential to avoid penalties and interest charges," said Nayyar.

What can you do to prevent such a notice?

• Ensure that all income sources are accurately declared in your tax returns
• You must comply with TCS rules and pay the required TCS on remittances exceeding Rs 7 lakh
• You must maintain proper documentation and keep detailed records of all foreign remittances for future reference. 
• In case of complex financial situation or large remittances, you may consider taking help from a professional tax consultant

"It is important that you should truthfully disclose the income earned by them every year. However, for past years, if you are anticipating to receive any such notice for discrepancies, then it shall be important to collect and gather information, records and requisite documentary proof which may be useful to explain or justify such a discrepancy," added Patnaik.