Foreign Remittances Income Tax Notice: A Detailed Guide for NRIs

Got a foreign remittances income tax notice from the tax department? Don't panic, as receiving a notice does not always mean you have done something wrong. Often, the notice is sent to confirm or ask you something that has been flagged in their system.

Want to know why you receive the foreign remittance income tax notice, what you need to do, and what happens if you ignore it? Read the blog and get your answers.

What are Foreign Remittances?

Foreign remittance is the process of transferring money from a person or organisation in one country to another in a different country. Under Indian foreign exchange laws, sending money for medical care, education, business purposes, or family assistance is permitted.

Under the Liberalised Remittance Scheme (LRS), resident individuals may remit up to USD 250,000 per financial year abroad for permitted transactions. NRIs may repatriate eligible funds from India subject to applicable FEMA and tax regulations. Common foreign remittance types include:

• Medical care overseas
• Travel costs
• Family upkeep and assistance
• Business and investment reasons
• Educational costs for studying overseas
• Purchases of real estate in specific nations
• Gift payments to relatives abroad

This was all about foreign remittance. Moving ahead, let's know whether it is taxable in India.

Is Foreign Remittance Taxable in India?

Foreign remittance taxation is regulated by the Liberalised Remittance Scheme (LRS) and the Income Tax Act, 1961, as overseen by the Reserve Bank of India (RBI). Additionally, the regulations on it vary depending on whether the remittance is inward, i.e., funds received from abroad, or outward, i.e., funds sent abroad.

Inward Remittance (Receiving Money from Overseas)

Generally, it is not taxable in India as money received as a gift or personal transfer from abroad is exempt from tax. However, if it constitutes income, such as consultancy fees or salary, it is taxed according to the income tax slab of the recipient.

Outward Remittance (Sending Money Overseas)

Certain outward remittances may attract Tax Collected at Source (TCS) under applicable provisions of the Income Tax Act, subject to prescribed thresholds and conditions. It is a designated percentage collected as Tax Collected at Source (TCS) by the authorised dealer (AD), generally a bank.

So, foreign remittance is taxable in India; however, it depends on the income type and whether it is inward or outward.

Why NRIs Received the Foreign Remittances Income Tax Notice?

The Income Tax Department of India has access to a lot of financial information from several sources, like international reporting systems (FATCA/ CRS) and banks. The Income Tax Department also receives information through Form 15CA/15CB filings, Annual Information Statements (AIS), banking records, and other reporting mechanisms. So when something in the financial data of NRIs does not match with their ITR or certain income disclosures are not made by them, the tax officials send them a foreign remittance income tax notice. Confused? Here are the most common reasons for receiving this ITR notice.

Mismatch Between ITR and Foreign Remittance Transactions

Upon crossing a certain threshold limit, banks need to report foreign remittances to the income tax department. Considering this, if a large outward or inward remittance is stated up in their records however does not explain in your ITR, then the department flags it.

For instance, if you received INR 30,00,000 from overseas and did not mention it as income or did not properly explain it as a non-taxable transfer, i.e., repatriated it from your own overseas account, you are likely to receive an ITR notice to clarify this income. It is one of the most common reasons that trigger the ITR notice for NRIs and returning Indians. Here, what seems like a normal money transfer for you is considered an unexplained income for income tax purposes.

Non-Disclosure of Foreign Income

If you earned income overseas, such as rental income, capital gains, salary, or dividends, and did not mention it correctly as per your residential status in India. In this scenario, under section 148 (reassessment) or section 142(1) (inquiry before assessment), you may receive an income tax notice.

The scope of taxable income varies depending on whether the taxpayer qualifies as an NRI, RNOR, or Resident and Ordinarily Resident (ROR) under the Income Tax Act. However, residents and ordinarily residents (ROR) are liable to pay tax on their global income. After returning to India, in a particular year, you were a ROR and received a foreign income, but did not disclose it, you may receive an ITR notice.

Additionally, if your residential status was determined incorrectly or if you filed ITR as an NRI when you were a resident, that discrepancy can result in a reassessment notice.

Incorrect Residential Status

For income tax purposes, the residential status in India is calculated on the number of days you stayed in the country during a financial year and, in some cases, over the preceding years. It is not about where you work or live.

Considering this, if you filed your ITR as an NRI, but the records of the department, i.e., immigration data, bank activity, or passport details state you were in India for more than the days you mentioned. Your residential status is questioned by the tax department.

Here, determining the residential status is important because it decides where you are liable to pay tax on your income earned in India (NRI) or global income (resident) for that year in India. In case you are not sure about your residential status, instead of getting a notice, it is advisable to seek help from a CA.

Foreign Asset Reporting Errors

Foreign asset reporting requirements depend on the taxpayer's residential status and the applicable provisions of the Income Tax Act. It is mandatory to file Schedule FA even if the assets do not provide any income during the financial year.

In case you forget to mention your foreign bank account, even if it is not active, or omit overseas inherited property or shares, you may receive an ITR notice for not disclosing these assets. Considering this, under the Black Money Act 2015, failing to disclose foreign assets leads to severe penalties more serious than those under the standard Income Tax Act. This category of non-compliance is treated very seriously by the tax officials.

These are some of the key reasons why NRIs receive an income tax notice on foreign remittance. Moving further, let's know how to respond to these notices.

How to Respond to a Foreign Remittances Income Tax Notice?

Do not delay responding to the notice. The response timeline depends on the specific notice and the provisions under which it has been issued. Always refer to the deadline mentioned in the notice, and missing it can result in facing significant issues. Considering this, here is how you should respond to a foreign remittance income notice:

• Step 1: Carefully read the received notice. Check the section under which you received the notice, for instance, section 142(1), 148, 131, or 143(2), related assessment year, and what explanation or information is being asked.
• Step 2: Using your username and password, log in to the income tax e-filing portal. On the portal, check that the notice you receive is genuine against what you have in your account. Never reply to notices received via email or post without cross-checking on the portal, as it may be fake.
• Step 3: Gather the required documents by your side that serve as evidence that perfectly explain the income or remittance in question.
• Step 4: Explain the nature of the remittance, whether it was the repatriation of your own funds, a gift, a foreign salary, or something else. Keep your explanation to the point and factual. Additionally, avoid using unnecessary information that could open new questions.
• Step 5: Submit your response within the given deadline on the portal and upload the supporting documents as well. In case you are not sure about your response or if the notice is linked to substantial amounts, it is advisable to seek the help of tax professionals. They can assist you in making a suitable response and guarantee that all your compliance matters get addressed.

This is how you can respond to an IT notice for foreign remittance in India. Moving forward, let's know the documents required to respond to an IT notice for NRI remittance in India.

Documents Required to Respond to Foreign Remittance Notices

To prevent penalties, it is vital to maintain proper documentation and follow the Income Tax and RBI regulations. Considering this, here is the list of documents you need when responding to the income tax notice on foreign remittance in India:

• For Foreign Remittances Reporting
• Bank statement showing the credited remittance
• Wire/ SWIFT transfer confirmation
• Where applicable, Form 15CA and/or Form 15CB may be required depending on the nature, amount, and taxability of the remittance. Where applicable, Form 15CA is furnished by the remitter and Form 15CB is a certificate issued by a Chartered Accountant certifying the nature and taxability of the remittance.
• For Foreign Income Not Declared
• Employment contract or foreign salary slips
• Tax return or proof of tax paid in the foreign country
• Tax residency certificate from the employment country
• DTAA benefit claim documents, if applicable
• For Foreign Asset Non-Disclosure
• Foreign bank account statements
• Details of overseas property, investments, or entities
• Proof that the assets were already stated in a previous Schedule FA of the ITR
• For Residential Status Disputes
• Passport copies with entry and exit stamps
• Overseas employment or residency proof
• Travel history for the relevant financial year

These are the documents you generally need for answering an income tax notice on foreign remittance. Moving ahead, let's know the consequences of ignoring the IT notice for NRI remittance in India.

Consequences of Ignoring Foreign Remittance Notices

Ignoring an income tax notice for NRIs is not a safe option, especially for foreign remittance, it matters as the consequences can be more serious than for standard domestic notices. Considering this, here is what happens if you do not respond to an income tax notice for NRI foreign remittance in India:

• Ex parte assessment: If you do not respond to the income tax notice on time, the income tax department can complete the assessment without your response. It often results in a higher tax demand than what you would have determined with your explanation.
• Tax Penalties Under the Income Tax Act: Depending on the applicable provisions of the Income Tax Act and the nature of the non-compliance, penalties may be imposed. It further depends on the nature of your default.
• Tax Penalties Under the Black Money Act: If the notice is for undisclosed income or assets, under the Black Money Act, you may face penalties as high as 300% of the tax on the undisclosed amount. Additionally, the offense can also attract prosecution.
• Best Judgement Assessment: Under section 144, if you do not respond to IT notices, the Assessing Officer may complete the assessment based on the available information, which may result in an adverse tax determination.
• Interest Under Sections 234A, 234B, 234AC: Any additional tax demand will also impose interest, which accumulates from the original due date.

Further, the longer you wait to respond, the fewer options you get.

Final Thoughts

Lastly, a foreign remittances income tax notice is generally sent by the tax department asking you to clarify something. If your remittances are correct and you file ITR accurately, with the right documents, you can usually clear things. The risk comes from not responding fully, ignoring the notice, or not disclosing foreign assets or income. Considering this, if you are an NRI or a returning Indian who frequently sends or receives money from overseas, you need to track your returns and disclosures to avoid IT notices.

Furthermore, if you are facing issues in responding to the IT notice, connect with Savetaxs. The tax experts in our team will help you answer the notice with a proper explanation. Additionally, we provide you with the guarantee that all your compliance matters will be addressed.