Sending ₹25 lakh or more abroad? What could trigger an income tax query

Sending money abroad through a bank or authorised forex dealer does not automatically put a taxpayer in the Income Tax Department’s crosshairs. But the department’s latest nationwide verification exercise is a reminder that being within the RBI’s foreign-exchange limits and being tax-compliant are two different things.

The Income Tax Department has launched a nationwide verification exercise covering around 394 entities and 36 professionals after its analysis of outward foreign-remittance data allegedly uncovered a network of entities sending large sums overseas despite reporting little or no meaningful business activity.

The exercise followed a search operation involving a group of fictitious charitable trusts allegedly engaged in providing accommodation entries against bogus donations and contributions. According to the department, several entities making large overseas remittances were either non-filers or reported very small turnovers that did not appear commensurate with the amounts being sent abroad.

The department also found cases where the stated purpose of remittances — including freight payments, software imports and consulting services — did not appear to match the entities’ actual business activities. Some entities, it said, were not operating from their declared addresses.

In a press release issued on 18 August, the department clarified that this is an entity- and shell-company-focused investigation, rather than a blanket review of every individual foreign remittance.

“Genuine individual remitters students, families, investors are not the stated target, though the drive could indirectly prompt more routine cross- checking of individual filings, since the data mining is happening at the level of bank/AD (authorised dealer) remittance records generally,” clarified Advocate B. Shravanth Shanker, Managing Partner, B Shanker Advocates LLP.

What can trigger scrutiny?

There is no specific remittance amount, country or beneficiary that automatically triggers scrutiny under this exercise, according to Ritika Nayar, partner at Singhania & Co.

“The focus appears to be on suspicious patterns such as large remittances that don’t match the taxpayer’s turnover or income, entities with little or no genuine business activity making substantial foreign payments, payments shown as freight, software or consultancy where the underlying business doesn’t support them, common or clustered foreign beneficiaries receiving money from multiple Indian entities, inadequate supporting documents or incorrect tax treatment. Entities in land-border districts and cases involving a high number of Form 15CB certificates issued by professionals are also part of the exercise,” said Nayar.

Other red flags can include inadequate supporting documents, incorrect tax treatment, common foreign beneficiaries receiving money from multiple Indian entities and cases involving a high number of Form 15CB certificates issued by a relatively small group of professionals.

Even a bank-routed transaction can be questioned

For an individual who has sent money overseas through an authorised bank or forex dealer, the key question is whether the transaction can be explained.

“Using an authorised bank/forex dealer and paying the applicable tax establishes compliance, but the taxpayer should also be able to explain the source, purpose, beneficiary and genuineness of the remittance,” Nayar said.

Taxpayers should therefore retain the bank/remittance advice, applicable Form 15CA/15CB or the corresponding new forms, TDS challans, invoices, agreements, beneficiary details and proof of source of funds.

For business-related remittances, contracts, invoices and accounting records become particularly important.

B. Shravanth Shanker, managing partner at B Shanker Advocates LLP, said the tax department can use data analytics, information reported by authorised dealer banks and international information-sharing mechanisms to identify potentially unusual transactions.

He said the department can consolidate remittance information at the PAN level, meaning that transactions conducted through different banks can potentially be viewed together.

That is relevant for taxpayers who assume that splitting a large remittance across multiple banks will keep individual transactions below a particular threshold.

“During foreign remittance verification drives, the Income Tax Department leverages automated data analytics, Statement of Financial Transactions (SFT) submitted by Authorized Dealer (AD) banks, and international information-sharing networks to detect non-compliance. A crucial element of this surveillance is PAN-level data consolidation, wherein the department aggregates all remittance data linked to a single Permanent Account Number across multiple banks and financial institutions. By clubbing transactions conducted through different Authorized Dealer accounts, the system effectively exposes taxpayers who split remittances across various banks to circumvent TCS thresholds, bypass monitoring triggers, or keep individual transfers below statutory limits such as ₹7 Lakhs. While personal payments made strictly within the Liberalised Remittance Scheme (LRS) framework are generally viewed as carrying a slightly lower risk profile compared to unverified commercial channels, even these LRS transactions will face rigorous scrutiny if the remitted amounts are not commensurate with the taxpayer’s declared income in their Income Tax Returns (ITR) for current or preceding assessment years, or when frequent high-value transfers ranging from ₹25 Lakhs to over ₹1 Crore are executed within short timeframes,” added Ankit Jain, Partner, Ved Jain and Associates.

Don’t confuse the LRS limit with a tax-free limit

One of the biggest misconceptions around overseas remittances is that staying within the RBI’s Liberalised Remittance Scheme (LRS) limit means the transaction is automatically tax-compliant.

It does not.

Under the LRS, resident individuals can remit up to $250,000 per financial year for permitted purposes such as education, travel, medical treatment, gifts and investments, subject to applicable rules.

But the $250,000 ceiling is a foreign-exchange/FEMA limit, not a tax exemption threshold.

“As the LRS limit is a FEMA ceiling, not a tax clearance, a remittance can be fully within the prescribed limit of USD 250,000, but can still raise tax question,” Shanker said.

For example, suppose a person reports annual income of ₹10 lakh but sends the equivalent of ₹1.5 crore abroad during the year. The fact that the transaction is within the LRS limit does not, by itself, explain where the money came from.

The tax department could ask the taxpayer to establish the source of those funds and explain the purpose of the remittance.

What if you are sending money to your child abroad?

Parents regularly remit money overseas to pay for their children’s tuition, accommodation, living expenses and other education-related costs. Such transactions are not the stated target of the department’s current exercise. But families should still maintain a clear paper trail.

Shanker recommended keeping the LRS declaration submitted to the bank, admission letter, fee invoice, bank statements and evidence showing the source of funds.

If the education is being financed through a loan, the family should also preserve the loan sanction letter and repayment records.

The idea is simple: if ₹30 lakh is remitted for a child’s overseas education, the family should be able to demonstrate that the money went towards a genuine educational expense.

“Keeping remittances mapped clearly to actual documented expenses will be useful,” Shanker said.

What if you are investing abroad?

Foreign investments require another layer of compliance.

Indian residents using LRS to invest in foreign shares, ETFs or other overseas assets need to ensure that the investments and any subsequent income are correctly reflected in their tax returns.

The tax department can compare remittance data reported by banks with disclosures in the ITR, including the Schedule Foreign Assets, as well as income earned from overseas investments.

For example, if an investor remits ₹20 lakh to buy foreign shares but later fails to disclose the relevant foreign assets or income generated from them, the problem is no longer simply about the remittance.

“Non-disclosure of foreign assets or income in Schedule Foreign Assets is treated seriously and can attract action under the Black Money (Undisclosed Foreign Income and Assets) Act,” Shanker said.

So, making the remittance correctly is only the first step; reporting the resulting foreign assets and income correctly is equally important.

“Every single rupee remitted under the scheme must be fully explainable through legitimate, tax-paid income sources under the Income Tax Act, 1961. Consequently, remitting USD 200,000 may be entirely compliant from a foreign exchange standpoint, but if the taxpayer’s declared annual income is only ₹10 Lakhs, the transaction can trigger a tax inquiry into the origin of those funds,” said Jain.

Why Form 15CB is under the scanner

Another important part of the department’s exercise involves professionals who issue Form 15CB, a Chartered Accountant’s certificate used for certain foreign remittances to determine the taxability of the payment with reference to books of account and relevant documents.

The department’s data analysis found that a large number of Form 15CB certificates had been issued by a relatively small group of professionals, while the remitted funds were also received by a clustered group of overseas entities.

This has raised questions about whether sufficient due diligence was undertaken before the certificates were issued.

The department has therefore included 36 professionals in the verification exercise.

The message for professionals is significant: a Form 15CB certification is not simply a formality.

The department has said accountants issuing such certificates are expected to exercise due care, diligence and professional judgment and properly examine the underlying transaction before certifying it.

“Form 15CB is a certificate issued by a Chartered Accountant before certain foreign remittances are made and to verify its taxability with reference to books of account and other relevant documents. On the analysis of the data by the department, it was revealed that a large number of Form 15CB certificates were issued by relatively small group of professionals and the remitted funds were also received by a clustered group of entities. These findings raise concerns about the due diligence carried out by the accountants before issuing those certificates. The Department aims to verify the professionals who have issued FORM 15CB certificates. The Chartered Accountant must independently verify the transaction, exercise due care, diligence and professional judgment, not merely accept the remitter’s representation, before signing the certificates, as these certifications play an important role in maintaining trust in the system,” said Shanker.

For an ordinary taxpayer, the takeaway is straightforward:

If you are sending money abroad for your child’s education, travel, medical treatment, gifts or investments, don’t just ask whether the bank allowed the transfer. Make sure you can also explain where the money came from, why it was sent, who received it and how the transaction has been reported for tax purposes.

And perhaps the most important distinction: staying within the $250,000 LRS limit does not give a transaction a clean chit under the Income-tax Act. FEMA compliance and income-tax compliance are separate requirements.