Why Is CBDT Focusing on Outward Remittances?

The CBDT's decision to intensify scrutiny comes on the heels of numerous instances where foreign remittances and expenditures did not align with the income declared by individuals. These inconsistencies highlight potential lapses in the collection of Tax Collected at Source (TCS), underscoring the need for a more vigilant approach.

Spotlight on Form 15CC

To facilitate this scrutiny, the CBDT has instructed field formations to commence verification and in-depth analysis of Form 15CC. This form is a quarterly disclosure statement detailing outward remittances, filed by authorized dealers to the Income Tax Department. The data from Form 15CC, meticulously collected and segregated since 2016, will now be available for comprehensive analysis.

Identifying Discrepancies and Curbing Tax Evasion

The primary objective of this initiative is to identify instances where remittances were sent but not accurately reported by taxpayers in their filings. This move is expected to curb tax evasion and ensure that legitimate remittances are processed smoothly, while also preventing the abuse of foreign remittance reporting relaxations.

Formulating a List of High-Risk Cases

The CBDT is set to prepare a list of high-risk cases based on a thorough scrutiny of data from the financial year 2020-21 onwards. Field formations have been tasked with creating a detailed Standard Operating Procedure (SOP) to identify these high-risk cases. A list of such cases is expected to be submitted by September 30.

Deadlines and Procedures

To expedite the process, the government has set a December 31 deadline for issuing the first notices to individuals identified as having undeclared income. This proactive approach aims to streamline the investigation and ensure timely action against potential tax evaders.

Case Study: Exploiting Loopholes to Avoid TCS

In one notable case, an individual with a declared annual income of ₹5 lakh was found to have remitted ₹15 lakh abroad over the last three years. By using three different dealers, the individual managed to evade the mandatory TCS, effectively escaping the tax net. This example underscores the need for stricter monitoring and reporting mechanisms.

Understanding the Liberalised Remittance Scheme (LRS)

Under the Liberalised Remittance Scheme (LRS), the government imposes a 20% TCS on foreign remittances exceeding ₹7 lakh. However, certain exceptions are provided for medical and educational expenses. In cases where the remitter or deductor certifies that the remittance is non-taxable, no further details are required. This provision applies to payments by importers, companies to their subsidiaries, or loans to non-residents.

Preventing Misuse of Relaxations

The Income Tax Department has detected several cases of potential misuse of these relaxations. Therefore, monitoring these payments, where exemptions are claimed, is crucial to prevent abuse and ensure compliance with the law.

Enhanced Monitoring and Reporting Requirements

The CBDT has instructed banks to report total forex spends as a distinct category, in addition to total credit card spends, even when TCS is not collected. This information is now recorded in the annual income statement, providing a more comprehensive overview of an individual's financial activities and facilitating accurate income tax assessments.

Recent Changes in TCS and LRS Regulations

Effective from October 1, 2023, the government increased the TCS rate on foreign remittances under LRS from 5% to 20%. Additionally, the 2023 budget included international credit card payments under the ambit of LRS and implemented TCS on these transactions. However, following widespread criticism, this measure was later rolled back.

Conclusion

As the CBDT intensifies its efforts to scrutinize high-value outward remittances, it is imperative for taxpayers to ensure compliance with the evolving tax laws. By staying informed and adhering to regulations, individuals and businesses can avoid penalties and contribute to a more transparent and accountable financial ecosystem.