DC Edit | I-T Crackdown: Don’t Harass Parents
Measures target tax evasion while allowing small taxpayers to declare overseas assets
The Central government has recently taken two major decisions concerning the outflow of foreign exchange from the country — the scrutiny of foreign remittances and the announcement of a foreign assets disclosure scheme for small taxpayers. Both decisions are aimed at improving tax administration by curbing tax evasion and shoring up tax revenue.
According to the income-tax department, a preliminary verification has shown that some entities were making foreign remittances despite being non-filers or not having adequate income. Some companies were found to be shell companies without any actual or sufficient business to generate the income required to remit foreign currency abroad.
As such transfers have a direct impact on income tax liability, the government must plug loopholes to increase tax collections. Typically, there could be two possible red flags in foreign remittances; one, when entities transfer foreign currency from India to a foreign entity without receiving any quantifiable product or service, including through overinvoicing; and two, when parents transfer foreign currency to their dependents abroad by informally raising loans.
The announcement of a foreign assets disclosure scheme for small taxpayers is aimed at shoring up tax collections from resident Indians who might have created assets during their stay abroad. Under the double tax avoidance agreement, Indian citizens have to pay tax in India on their foreign income, including capital gains.
Unless the government knows about the assets held by Indian citizens abroad, it cannot effectively tax the profits they make from their sale. Under this scheme, an assessee can declare previously untaxed foreign income and assets up to a maximum limit of Rs 1 crore by paying an effective tax-cum-penalty of 60 per cent on the declared amount.
While the income tax department should make every effort to raise tax revenue, it must not harass parents making foreign remittances for their dependents or other people merely to trace lenders who might not have paid their taxes.
