Tax Notice On Foreign Remittances? Here's What To Do

There are a lot of people who undertake foreign remittances during a financial year. These are done for a wide variety of purposes ranging from payment of fees for children studying abroad to buying assets overseas. This requires undertaking a specific procedure and at the same time there is also the need to ensure compliance with the income tax requirements.

There have been several reports that the Income Tax Department has been sending notices to those who have transferred abroad more than a certain amount. This should not cause any worry for an individual if they have done things right. Here are some conditions when the notice could come or not come and how the individual should respond.

The goal of the Income Tax Department is to ensure that big amounts of income are not escaping taxation and hence the focus of the department is on such transactions, to catch these evaders. If you are an individual who has made some small expenses abroad either on a trip for vacation or for some other purpose, then this should not be a cause for worry. There is always a threshold, above which, the tax department focuses and issues notices, so smaller amounts used for genuine purposes is not likely to generate any problems for the taxpayer. This should put their mind at ease and ensure that they continue their activities in a normal manner.

One of the main reasons why the tax department will issue a notice to the taxpayer for larger transfers abroad is if they have not filed their income tax return. There are two main reasons why the tax return is not filed. One could be delay after the due date, while the other is there not being any intention to file any returns. This is a situation where the tax department will not have any idea as to why the amount has been transferred abroad and what is the source of such income. This can be easily avoided as every tax payer should file their tax return and, that too, in time by the due date. This will ensure correct depiction of the income and tax paid and avoid additional consequences later on.

The other most common reason why such notices go out is because there is a clear mismatch between the various figure in the return that has been filed by the taxpayer. If there is a large amount that has been transferred abroad, then there should be some matching income in the return of the individual, to show where the money has come from. If this is not present then the tax department can demand an explanation. The tax payer needs to have a clear trail of where the money has come from. If this is done, then it will address the concern of the tax department.

There are also times when the tax department sends notices to a large group of people who have undertaken specific transactions. This could be one such situation and the solution for the tax payer to tackle this is very simple. They would have shown the details in their return, as well as have clear proof of the reason for which the money was sent abroad. They can simply give their reply or explanation to the notice, providing the various details which clarify this point and this would clear up the whole situation. This will ensure that there is a close to the matter because the taxpayer should not ignore such notices, even if they have complied with all the regulations. They need to reply to any such notice and not leave it unanswered.

Arnav Pandya is founder Moneyeduschool.