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The Income Tax Department has launched a nationwide verification exercise into suspicious foreign remittances after its data analysis identified entities sending significant amounts of money overseas despite reporting little or no business activity. The exercise covers around 394 entities, including 117 entities located in states along India’s land borders, as well as 36 professionals who issued certificates related to foreign remittances.
Why Are Foreign Remittances Being Investigated?
The department’s analysis found cases where entities had remitted large amounts of foreign exchange over the past three years, while their income-tax returns showed either very small turnovers or no filing. In some cases, the scale of overseas transfers appeared inconsistent with the reported size of the business.
The stated purposes of some transactions included payments for freight, software imports and consulting services. However, the department found that the reported business activity did not appear to match the scale of these remittances. Ground verification also found cases where entities were reportedly not operating from their declared addresses.
The investigation follows a wider search operation that uncovered a network of entities allegedly involved in suspicious transactions linked to fictitious charitable trusts and accommodation entries.
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Form 15CB Also Under Review
The verification exercise is also examining the role of professionals who issued Form 15CB certificates for foreign remittances.
Form 15CB is a certificate from a Chartered Accountant relating to the taxability of certain payments being remitted outside India. Under the new income-tax framework, the corresponding form is Form 146. The certification process requires professionals to examine the underlying transaction, relevant documents and applicable tax provisions before issuing the certificate.
The Income Tax Department is therefore checking whether adequate due diligence was carried out before these certificates were issued.
What About Normal Foreign Transfers?
The verification drive does not mean that every person sending money abroad is under suspicion.
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Individuals and businesses can make legitimate overseas payments for purposes such as education, investment, travel, services and other permitted transactions, subject to applicable rules.
For resident individuals, overseas remittances under the Liberalised Remittance Scheme (LRS) are subject to the prescribed limits and reporting requirements. The current annual LRS limit is $250,000 per person, subject to the applicable rules.
The department’s focus is on transactions where the amount, stated purpose, financial profile or supporting documentation raises questions.
Why Data Matching Matters
The latest action highlights how tax authorities are increasingly using transaction data and analytics to identify potential mismatches.
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Foreign remittances leave multiple reporting trails through banks, authorised dealers, tax forms and other financial records. The Income Tax Department’s new Form 145 framework is also integrated with its systems for risk profiling, analytics and verification.
This means a significant mismatch between a taxpayer’s reported financial position and the amount being transferred overseas can attract additional scrutiny.
What Should Taxpayers Do?
Individuals and businesses making legitimate foreign remittances should maintain proper documentation supporting the transaction. This can include invoices, agreements, bank records, proof of source of funds, tax documents and other relevant paperwork.
Businesses should also ensure that the stated purpose of a remittance matches the underlying transaction and that required tax forms and certificates are correctly completed.
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Anyone receiving a notice from the Income Tax Department should respond within the specified timeframe and provide the requested documents rather than ignoring the communication.
Key Takeaway
The latest verification exercise shows that foreign remittances are receiving greater scrutiny as tax authorities expand their use of data analytics and cross-verification.
The investigation is currently focused on transactions that appear inconsistent with reported business activity, suspicious entities and professionals involved in certification. Legitimate overseas transfers remain permissible when they comply with the applicable tax and regulatory requirements.
For taxpayers and businesses, maintaining accurate records and ensuring that the source, purpose and documentation of overseas payments are properly aligned will be increasingly important.
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This article is for educational purposes only and does not constitute tax or legal advice.
