HNIs using remittances plan to evade taxes: SIT

The LRS is extensively used by HNIs to transfer funds abroad up to the permitted limit of $250,000 every financial year. Under LRS, there is no restriction on the use of funds remitted abroad –– it can be gifted, spent freely, invested in financial securities, purchase of properties in any part of the world and so on.

SIT is believed to have observed that “LRS is used to avoid paying taxes in India on funds transferred abroad via the scheme by gifting funds and thereby diverting income earned on these funds to non-residents.” A follow-up action on the report came up for discussion at a meeting on June 18, 2019.

“…With these remittances abroad, foreign exchange reserves position may become stressed especially in view of the country’s requirement for purchasing additional defence equipment in the coming months,” the SIT is understood to have stated.


The report stated that Mumbai and Delhi are popular destinations for marketing Gulf-based properties by real estate firms based in their countries, according to highly placed sources. LRS is the most used instrument for funding the cost of properties in the Gulf. In many cases, part of the consideration is paid through funds transferred under LRS and the balance through funds transferred illegally from India, SIT is believed to have noted.

It suggested that details of all gifts, made out of remitted funds, should be disclosed in the returns and the assessing officer should verify the authenticity of the claims.

LRS FOR IMPORTERS
SIT is believed to have pointed that huge amounts have been wired outside for a long time without corresponding imports taking place –– a situation it believes is “serious”. The anti-black money panel has recommended setting up a systematic mechanism for monitoring all cases of advance remittances to avoid exploitation of liberal monetary practices for “illicit transfer of funds abroad”, ET has learnt.

RBI should prepare a time-bound schedule for banks to get a correlation of advance outstanding against imports with ‘bill of entry’. It should be monitored by RBI and DRI, the report is said to have outlined.

CASH HOLDING
According to SIT on black money, there should be some limit on cash holding to control the circulation of unaccounted money, with a provision that cash beyond the prescribed limit shall vest in the government of India. The limit on cash holding may be fixed between ₹50 lakh and ₹1crore.

BITCOIN/CRYPTOCURRENCY
The report stated that bitcoin/cryptocurrency must be declared illegal. There should be a specific provision that dealing in bitcoin/cryptocurrency would be punishable with a minimum imprisonment of five years. It should accompany a declaration that the amount of bitcoin/cryptocurrency would vest with the central government. The source for purchase of bitcoin/crypto would remain unknown, even if there is regulation to the effect that such currency could be purchased by paying the disclosed amount, SIT is learnt to have observed.

ANTI-MONEY LAUNDERING LEGAL FRAMEWORK
SIT is believed to be of the view that chartered accountants, cost accountants, and company secretaries should be brought under the anti-money laundering legal and regulatory framework as reporting entity as they are privy to all transactions carried out by clients.

AMENDMENT TO COMPANIES ACT, 2013
It is learnt to have suggested that appropriate action is required against persons violating provisions of Section 165 of the Companies Act. For this, SIT is said to have reiterated that fine, as provided in the Act, must be imposed, instead of filing prosecution. The Companies Act, suggested the anti-black money panel, should be suitably amended by inserting provisions which (a) debars companies from having the same address and (b) makes liable the holding company for the loss incurred by the subsidiary company, in case the subsidiary company is not in a position to pay its liability.

ASSESSED AMOUNT
According to CBDT data, ₹87,035 crore disputed tax remains unutilised owing to litigation in Income Tax Appellate Tribunal, high courts and the SC as on March 31, 2018. SIT suggested that the assessee should be directed to deposit at least half the disputed amount before filing an appeal. In case the appeal is allowed, the amount should be refunded with interest, SIT suggested.