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Spot the difference between Indian taxmen and their global peers

By Jayshree P Upadhyay
April 20, 2015 09:58 IST
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No other country but India has mandated disclosure of foreign travel; govt's promise of review being watched keenly.

Image:  India's new policy where an individual has to report his foreign travel at the time of filing I-T returns is not a common practice globally. Photograph: Rupak De Chowdhuri/Reuters

On the one hand, the new income tax (I-T) return forms for individuals widen the tax net to pinpoint tax evaders and the source of income; on the other, these make filing returns onerous, with details of foreign travel required. According to the new I-T forms, any foreign travel would need to be reported, through a copy of the passport attached with it.

The compliance also extends to reporting the expenses incurred - whether it is from a personal account or billed to a company.

The forms will also try to match the expenses incurred with the funding. However, following protests from taxpayers, the government said on Saturday, a day after issue of new tax filing formats, that it would simplify the ITR form.

Experts, however, point out that assurances alone might not address all the concerns of taxpayers.

Experts say the move is aimed at questioning the source of income and identifying whether the income is from legitimate channels and means.

"The aspect of detailed reporting of foreign assets is globally becoming a standard. But where India differs from other nations is the requirement of disclosing foreign travel, so far not mandated by any other country," said Rashi Dhir, senior partner, DMD Advocates.

According to Vineet Agarwal, partner, KPMG, the new form also provides a schedule on foreign travel, which mandates a taxpayer to report the details of his passport, foreign travel, the countries visited and the expenses incurred.

"This introduction to the form might draw some parity to the income reported in the return form and the quantum of expenditure incurred on trips abroad," said Agarwal.

Tax officials say, there is a drive to locate suspicious foreign exchange transactions.

In many instances, people travelling abroad get rupees converted into the foreign currency concerned by local dealers, who offer the best rates.

In most of these cases, the dealer refuses to give a receipt for the transaction, which leads to the government losing on a chunk of revenue through sales tax.

"It would help reduce any incidence of hawala transactions," said a tax official.

Though the requirement of disclosing foreign travel and expenses will help taxmen extend their reach on tax evaders, it will lead to increased compliance requirements for individuals.

One will have to disclose the country visited, the number of visits, and the expenses incurred.

This could very well mean one might have to sit with a chartered accountant while filing tax returns to avoid non-compliance.

It was expected the government would seek more disclosures from individuals and companies about foreign assets (financial and physical), income, beneficiaries, etc, but the details being sought are baffling many individuals.

Some are saying, it is breaching their personal affairs and activity. Unsurprisingly taxpayers are peeved.

"Which country in the world asks for details of foreign visits and expenses incurred there? This means more harassment ahead for citizens," said a high net worth individual taxpayer. Another taxpayer says, foreign trips are personal affairs.

"My foreign travel is my business. Why should I disclose it to tax the department? If the intent is to pinpoint the source of expenditure, they already have my bank and credit card statements from banks," he said.

Experts say, the requirement to disclose foreign assets is a global norm. However, India has gone a step ahead

. "Taxmen should focus on activities that raise income, as that is an event of tax," said Dhir.

Such detailed reporting will also add pressure on tax officials, as this could lead to huge volume of data being processed.

For non-resident Indians and expatriates, the compliance requirement will become increasingly onerous, as they frequently fly in and out of India.

Experts say, this could lead to the requirement of multiple reporting for such individuals. They add, there could be instances of harassment by tax officials.

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Jayshree P Upadhyay
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