Tax officials don’t need TCS to catch thieves

A flurry of social media posts from some of the government’s most ardent and vocal fans said it was a flawed move that would make foreign travel more expensive and increase working capital requirements, despite a provision for claiming refunds.

Infosys co-founder Mohandas Pai wrote in an opinion piece that “TCS of 20% on credit card payments for foreign travel is one such instance where citizens are put to greater inconvenience, higher compliance costs and unnecessary harassment as IT The department believes that it does not have the tools to detect whether taxes are being evaded or not. The simple solution is that any citizen who has filed tax returns for three years and has a PAN card should not be subject to any TCS. Also, there could be a TCS of 2% to ensure traceability, but why 20%”.

Chief Economic Advisor V Ananth Nageswaran responded to Pai in an op-ed, arguing that “TCS on credit cards was done to track foreign spending in proportion to income. It was also expected that With this people will come forward and file tax returns.

Nevertheless, the government gave in to the public outcry and retracted its decision. then, pay till 7 lakh through international debit or credit cards will not attract TCS.

The decision to exclude international credit and debit card expenses from the LRS is welcome, but the episode betrays the mindset of policy makers. Government spokespersons continued to defend the move even after it was rolled back, saying that TCS would create audit trails and help detect under-reporting of income by wealthy individuals.

While this is true, the Income Tax Department already has little access to information from third parties such as banks, credit card companies and authorized foreign exchange dealers to probe potential tax evaders into their spending patterns . The tax department should receive this information carefully lest linking individuals with a TCS would unnecessarily increase the compliance burden.

India is rapidly globalizing, and preventing citizens whose lifestyles have changed from spending on things like foreign travel is downright regressive, even though Nageswaran refutes it.

Indian residents using the LRS – which allows an individual to freely remit up to $2,50,000 per year for any permitted current- or capital-account transactions, or a combination of both – after paying taxes Do this And the money is sent through banks.

In 2019, the Supreme-Court appointed Special Investigation Team (SIT) on black money probed the possible misuse of LRS for tax evasion. It wanted the disclosure of gifts given under the scheme as well as the returns of income to be scrutinised.

Given the fact that strong audit trails are already available for any transaction, it is mandatory for individuals to provide their Permanent Account Number (PAN) for all transactions under the LRS. There is a lack of thorough scrutiny of these transactions by the Income Tax Department.

The SIT reportedly believed that only a part of the price of the properties purchased in the Gulf was paid through LRS, with the remaining being transferred illegally. But even those that attempt to take tax-free income outside India will run up against India’s automatic exchange of information agreements with several countries. The SIT should have been aware of this even as it tried to establish contemporary relevance.

Perhaps the government took into account the views of the SIT before introducing TCS in LRS in 2020. In the budget for 2023-24, the central government increased the TCS on LRS transfers from 5% to 20%. Not surprisingly, public backlash followed the TCS to make credit card spending on foreign trips effective July 1.

Public memory is short. Ever since the government introduced annual information returns, audit trails on credit card spending have been available to tax authorities – now renamed as financial transaction details – which help potential taxpayers by examining their spending patterns. Identifies.

Income tax law requires credit card companies to report transactions by more persons 10 lakh a year. The tax department also stores information about people who pay bills in excess of credit cards. 1 lakh cash. And if a person’s cash settlement is not proportionate to his declared income, the IT department will seek an explanation.

A foreign exchange dealer is mandated to provide information to the tax department on expenses incurred by a person in foreign currency through debit or credit cards or by issuing drafts or travelers checks for higher amounts. 10 lakh a year. The tax authorities also have the right to seek information, whether from the airlines or the immigration authority.

The only limit to how much information is collected is the department’s ability to use the information collected while protecting against misuse of the data. What is needed is an intelligent analysis of this data that uses technology to sniff out untapped income.