Video transcript (auto transcription can contain errors):
Hello, and welcome. In this video, I’m sharing when what are the situations where an NRI can receive a tax notice in India. Right? Okay. So just a background to this is that in the income tax law, there is a rule 114 e, whereby financial institutions, need to report certain significant transactions to the income tax department.
Right? So that that is like a mandatory rule. They the financial institution, for example, ICSA Bank or HDFC Bank or HDFC Mutual Fund, they need to report certain transactions to the income tax department if they cross beyond that specific threshold. Now they that particular transactions form the base for the income tax department to further scrutinize and send tax notices. Right?
And one of the major reason is that against a particular PAN, if there is a significant transaction that has been reported to the income tax department and there is no return filed against, you know, that particular, PAN. So that’s, like, clear cut, instance that you may receive a tax notice that you have not filed the tax letter. Now this this particular requirement is applicable to all. So it’s not only that it’s applicable to, nonresidents only. It is applicable to all.
So the important thing to understand is that even though you are a nonresident, right, it doesn’t mean that, you know, you can escape the provisions of the law. Right? Any investments in India, any credits to any of the accounts, even to a NRE account, Right? Any credits, any remittances that you send. These are all see, understand, these are all Indian accounts.
Income tax department is, like, all the data, you know, the analytics and all becoming so strong that they are able to track, you know, these transactions that you’re doing. Right? And, the requirements for the thresholds are aggregate across accounts. Right? Now trigger in the more most of the cases, the trigger is that the person has not has done a significant transaction.
For example, you’ve bought a property for 1 crore in India in the financial year, and that gets reported to the income tax department because of rule 114e. And you’ve not you you’ve not filed the return or you for example, if you had a rental income from a property, you’ve not disclosed the rental income in the tax return. So, automatically, the tax notice will be sent. Now what are the transactions, that are need to be reported? Now there are certain transactions where the trigger happens only when the payments has been made in cash.
Right? So first is, like, payments made in cash or purchase of bank draft’s pay order, banker’s check. If you make payments in cash more than 10 lakhs for bank draft, pay order, banker’s check, that becomes a trigger. Right? That transaction will be reported, to the income tax department.
Now understand this that just because that the information has been sent to the income tax department doesn’t mean that income tax department will kind of levy any tax or it doesn’t also mean that you have to disclose any income. Right? If there is no income to be disclosed, there is no income to be disclosed. Only thing is that there may be a to and fro between the between you and the income tax department with respect of these transactions. They might ask you to provide more details, and if you provide more details, then there is no problem.
Right? But, yes, you have to be careful, especially careful if you have these transactions during the financial year in India. See, because the problem is that you are not in India. You are based out of India. Right?
So your so, for example, you are based in US. You have more interest and more attention is towards the US investments and all these things. However, if you have any such transaction, it can trigger kind of a tax scrutiny or something in India. So you need to be careful that you maintain proper documentation, file a proper tax return in India. Right?
So, generally, we are more interested in making the investments and everything and, you know, remitting money and you know? But we don’t take care of these tax aspects. And later on, these things only lead to penalties and everything, so we want to avoid that. Next is payment made in cash for purchase of any prepaid instruments, for exam for more than 10 lakhs. For example, you load your you have a forex card, a prepaid card, and you load, like, more than 10 lakhs in cash, so that can get triggered.
Then cash deposits or cash withdrawals, including through bearish check, in or from any current account, more than 50 lakhs. Right? Cash deposit withdrawal, more than 50 lakhs in a current account, that can trigger. Then cash deposits more than 10 lakhs in 1 or more accounts other than a current account and time deposit. Right?
Other than a current account and time deposit means any bank account. Right? Any account you have, if you deposit cash of 10 lakhs, it will it can trick, trigger a reporting requirement. Then any new time deposits that you make, any fixed deposit that you make more than 10 lakhs, right, which includes any even NRE fixed deposits, right, this can trigger. Then credit card bills paid in cash more than 1 lakh or other more than 10 lakhs.
If you have a credit card bill, if you pay in cash more than 1 lakh, that can trigger or any other mode. If you pay online, but the total bill for the financial year across all your credit cards is more than 10 lakhs, right, it can trigger. Then purchase of new bonds, debentures, shares of more than 10 lakhs, that can trigger. If you purchase any shares more than 10 lakhs through your brokerage, the brokerage will report. Now, generally, what happens is, although they this aggregate value across accounts then, but then for it’s basically for the per financial institution.
For example, you have, like, your account in Zerodha, and you purchase a new shares more than 10 lakhs through Zerodha. Zerodha will have to report that your particular account to the income tax department. Right? And then if you if you have any share transactions and, you don’t report income from share transactions in your in your tax return, although it may be less than, whatever, 1 lakh and it’s exempt under 1038, you need to disclose in the schedule EI, which is the exempt income That, okay, this much income was their income, but it was exempt from tax. If even if you do that, then tomorrow, income tax department cannot put a concealment penalty to you.
Right? So you need to take care in your tax return. Ensure that all and every income, if you even if it is an exempt income, for example, NRE fixed deposits, it’s a interest from NRE fixed deposits. It’s better to disclose that income in Schedule ei, right, than purchase buyback of shares or purchase of units of m f other than an inter scheme transfer. So if, like, it’s not if you transfer the money from one scheme to another, that is not reportable.
But you purchased or buy back shares or purchased the units of mutual fund. Mutual fund is also covered, more than 10 lakhs during the financial year. Sale of foreign currency or credit to foreign exchange card or expense, traveler check, drafts, more than 10 lakhs. Purchase or sale of immovable property, this is very important, more than 30 lakhs. Either the sale consideration or stab duty value.
Now any property you go in any of the normal metros or many entire 2 cities even, it’s more than 10 lakh 30 lakhs only. Right? So that’s this is a very low threshold. So practically, any immovable property you purchase or sell in India, you need to be very, very careful that your tax return may be, open for scrutiny purposes. Right?
So you need to be very careful in terms of your whatever transaction you have done, you know, including the particular the capital gain in the tax return. If you are claiming any deductions, you claim the deduction properly. You if you have, like, deducted any TDS, depositing that TDS, having the tax TDS returns in place. Right? Okay.
Receipt of cash for sale of goods and services. If you have if you do any sale of goods and services and you receive any cash more than 2 lakhs, that is where you can get a tax notice. Capital gains. Now there are certain things which is not reportable, but basically they need to be reported to the income tax department because now income tax department, what they’ve done is that they’ve tried they’ve they are trying to prefill your tax return as much as possible. So when you file your tax return, to make it easy for you, they will prefill certain details like capital gains on transfer securities, mutual fund units, or dividend income, interest income.
They will try to prefill everything for you. So you have to little do little as a little work as possible. So any such capital gain, MF, dividend, interest income, all these things are also reported to the income tax department. So the income tax department has have has also has this information which they can use to so, for example, income tax department has the information that I you have a 10 lakh capital gain. And when you file the return, they’ll wait till you file the return.
And when you file the return, you have not disclosed that amount in your tax return. So, automatically, they will they can send a tax notice that this was the income that was reported by the financial institution, and you have not please let us know the reasons for the same. Many a times, there are errors also. In this whole process, there are errors by the income tax department. So that is also the possibility.
Right? So the point to remember is that you should always, always file the tax return every year even though you are not required to file. My advice is that if you’re a nonresident and you have any financial interest in India or you want to return back to India at a later date, always file a tax return. It just takes a few 1,000 rupees, but peace of mind is there, continuity is there. You are safe from kind of getting notices that you have not filed the return.
Right? Disclose the income properly. Right? You disclose the income, whatever is there, in a proper way. Right?
Spend your spend time on your tax return disclosing the proper incomes. Have an explanation for each the credit entry in your bank account. Even though the income is not taxable in India, but any credit for example, your credit, I’ve made separate video on whether NRE income in NRE account is taxable. In specific cases, it may be held taxable. So you may need to have proper explanation for every credit entry.
So, generally, when you do all your tax, you know, filing work, when you sit for your tax filing, always take your bank statements, all of your bank statements. Right? And ensure that you have explanation. Either you have a disclosed that that particular credit entry in your Indian tax return, right, or you have disclosed it in the exempt section, schedule EI, or you have a very, very credible explanation of this particular income that it need not be reported in the Indian tax return. Right?
So you need to have all the documentation also that you should have ex you can, like, make small notes, add a separate kind of a column and make the note that this is what this credit is for this. This credit is for this. At least for the high credits, for very small credits, you can ignore. But then the high, amount, significant amount, you need to have an explanation ready. What basically happens is that, okay, for today, I remember that for FY 23-24, I have to file the tax return by, like, June 2024, July 31, 2024.
I I’m very clear that, okay, these transactions happen. What about the transaction that happened, like, 3 years down or 3 years back or 4 years back? Because the income tax department has the right to open those returns. So for every year, make a folder. In that, have the bank statement.
Against that, have a separate column. Make the entries at the time of filing so that even 4 years down the down the line, you have an idea that, okay, this was for what? This credit was for what? Right? So that you should have.
Right? And avoid cash transactions as much as possible. And it’s and the biggest, example for that is the real estate transactions, which always and always have no maximum times. It has a white black element, and, you know, that creates a lot of complexity. And that’s why investing in real estate in India is always, you know, whether you should invest or not invest.
Again, that’s a separate subject. I will make a video on that because of these issues. And do not panic. If you have if you receive a tax notice, it’s always, 90% of the times, only for gathering the information. Right?
It’s a auto triggered kind of thing. So do not panic. I’ll make a separate video on what you should do if you receive a tax notice So that I’ll cover in a separate video. So I hope this was useful. If you have any queries, any thoughts, do share it in the comment section.
Thank you so much for watching this video.