The season of filing Income Tax Returns has just wrapped up for the salaried professionals but is still open for certain category. Multiple payments and
income options are scanned by the department in order to analyse your return. Recently, the Income Tax Department has launched a nationwide verification exercise covering around 394 entities and 36 professionals. Its analysis of outward foreign-remittance data allegedly uncovered a network of entities sending large sums overseas despite reporting little or no meaningful business activity. The department's latest nationwide verification exercise is a reminder that being within the RBI's foreign-exchange limits and being tax-compliant are two different things. The Income Tax Department move has come after a search operation involving a group of fictitious charitable trusts allegedly engaged in providing accommodation entries against bogus donations and contributions. According to the department, several entities making large overseas remittances were either non-filers or reported very small turnovers that did not appear commensurate with the amounts being sent abroad.
What can bring you under scrutiny?
Experts on the matter have said that there is no specific remittance amount, country or beneficiary that automatically triggers scrutiny under this exercise.
Income Tax Department in a press release has clarified that this is an entity- and shell-company-focused investigation, rather than a blanket review of every individual foreign remittance.
Inadequate supporting documents, incorrect tax treatment, common foreign beneficiaries receiving money from multiple Indian entities might also trigger notice from the tax department.
The payers need to be careful and not mix it with the Reserve Bank of India's (RBI) Liberalised Remittance Scheme (LRS) limit.
One of the biggest misconceptions around overseas remittances is that staying within the RBI's LRS limit means the transaction is automatically tax-compliant.
Notably, under the LRS scheme, resident individuals can remit up to $250,000 per financial year for permitted purposes such as education, travel, medical treatment, gifts and investments, subject to applicable rules.
But the $250,000 ceiling is a foreign-exchange/FEMA limit, not a tax exemption threshold.
