It’s important for every taxpayer to ensure that all relevant financial transactions carried out during the financial year are accounted for when filing their income tax return (ITR). This has become increasingly crucial now that the Income Tax department receives automated information on individuals’ financial transactions. The data in the Annual Information Statement (AIS) is populated based on inputs from reporting entities such as banks. In this regard, banks have recently begun reporting total forex spends as a distinct category, in addition to total credit card spends.
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So, if you have travelled abroad and used your credit/debit/forex card or bought goods or services from foreign websites or sent remittance abroad or purchased foreign currency then it is important for you to reconcile data captured in your AIS with the actual transactions. This is because if there is a mismatch between your ITR and the data in AIS, the tax department may ask you to explain the difference.
111428731Source: Ankur Mittal, co-founder, cardinsider.com
“This separate reporting happened recently as up until last year banks were not reporting forex spends as a separate category under credit card spends. The minimum threshold for banks to report such foreign transactions is still unknown but, in my case, I have spent more than Rs 10 lakh in shopping abroad using my Indian credit card. I have also seen people spending as much as Rs 5 lakh getting this separate report in their AIS,” says Ankur Mittal, co-founder, cardinsider.com
Which credit/debit/forex card spend data gets shown in your AIS?
As per experts, transactions through debit/credit/forex cards are shown in your AIS through two sources of information: TCS filing on account of LRS transactions and specified financial transactions (SFT) filings by various reporting entities.
As per Gopal Bohra, Partner, N.A. Shah Associates, here are the various transactions that is reported:
- Forex or international debit cards: Transactions through forex or international debit cards come under the Liberalised Remittance Scheme (LRS). Banks have to collect TCS on remittances above Rs 7 lakh in a financial year at 5% rate for medical treatment or education and at 20% rate in other cases.
- Foreign currency: Purchase of foreign currency including credit of foreign currency to a foreign exchange card or expenses in foreign currency through a debit or credit card or travellers’ cheque or draft of an amount aggregating to Rs 10 lakh or more in a financial year are reported in AIS through SFT filling by reporting entities.
- Credit cards: Transactions through international credit cards are currently exempt from TCS, and accordingly, banks do not collect TCS. However, banks report all remittances under LRS through TCS filing, irrespective of whether TCS is collected or not.
Bohra explains the reason behind the reporting of credit card transactions by banks. “As per Rule 31AA(4)(vi), a collector (i.e. authorised dealer) has to furnish particulars of amount received on which tax was not collected by authorised dealers where the aggregate of amount remitted is less than Rs 7 lakh,” says Bohra from N.A Shah Associates.
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What are the transaction threshold limits for TCS on foreign transactions?
As per Dr. Suresh Surana, a practising chartered accountant, foreign transactions falling under LRS shall be subject to TCS, which would be reflected in the AIS.
The threshold limits for TCS are as follows:
| Serial number | Nature of Transaction(Type of Remittance) | Threshold for Collection |
| 1. | LRS for the purpose of educational loan obtained from financial institution mentioned under section 80E | Up to Rs 7 lakh- nilAbove Rs 7 lakh- 0.5% |
| 2. | LRS for the purpose of education other than the purpose mentioned in serial number 1 and for medical treatment | Up to Rs 7 lakh- nilAbove Rs 7 lakh- 5% |
| 3. | Any other LRS remittance other than mentioned in serial number 1 and 2 above | Up to Rs 7 lakh- nilAbove Rs 7 lakh- 20% |
| 4. | Purchase of overseas tour program package | Up to Rs 7 lakh- 5%Above Rs 7 lakh- 20% |
Source: Dr. Suresh Surana, a practising chartered accountant
Do you need to file ITR just because foreign transactions are showing up in AIS?
Mere capture of financial information in the AIS does not warrant that you file an ITR. This is because ITR filing depends on earning an income above the basic exemption limit or conducting certain specified transactions in the respective financial year.
“If you have made foreign transactions using an Indian credit card, these transactions will be recorded in the AIS. The AIS will capture these transactions, but the requirement to file an ITR is mainly based on your income level or if you have conducted certain specified transactions,” says Chartered Accountant Isha Jaiswal.
Surana explains some of the specified transactions where you have to file ITR irrespective of income level:
- If he/she has incurred aggregate expenditure in excess of Rs 2 lakh for himself or any other person for travel to a foreign country, or
- If a taxpayer has any foreign assets or
- If the taxpayer is enrolled as a signing authority in any account located outside India.
What should you do if foreign transactions are showing up in your AIS?
According to Surana, here’s what you should do:
- Make sure that the data in AIS is captured completely and accurately shown in the ITR: It’s crucial to ensure that all foreign transactions relevant to your PAN are accurately reported in ITR. This includes incomes earned from foreign sources and expenses related to foreign transactions.
- Taxability of Foreign Income: Income earned from foreign sources is generally taxable in India, subject to certain exemptions, deductions, or relief under Double Taxation Avoidance Agreements (DTAA). Hence, you must report such income in the ITR and file the appropriate schedule. Accurate reporting of foreign transactions helps you avoid penalties and interest for non-disclosure or under-reporting of income. It ensures compliance with tax laws and regulations, thereby mitigating legal risks.
- Maintain documentation and records: Maintain proper documentation and records of all foreign transactions, including receipts, invoices, bank statements, and other relevant documents. These documents serve as evidence to substantiate the reported income and expenses in case of scrutiny by tax authorities. Taxpayers whose AIS shows significant foreign transactions may be subject to scrutiny by tax authorities. This could involve a detailed examination of their ITR, including verification of the reported income and taxes paid.
Will your AIS show outward remittances?
It may happen that your son or daughter is studying abroad, and you wish to send him/her some money. For doing this you need to do an outward remittance transaction. “TCS is collected at 20% rate on such remittance in excess of Rs 7 lakh. Such Outward Foreign Remittance is displayed in Part B7 being ‘Any other information’ in relation to Rule 114-I (2) of the Income Tax Rules, 1962,” says Surana.
Experts say that AIS may not show it if no TCS is collected from such a remittance and it is not reported under SFT/Form 15CC.
“The Outward foreign remittance details would appear in AIS either from SFT /Form 15CC filing or where TCS is collected through TCS filing. Thus, it may be unlikely that any such detail may not appear in the AIS unless they are not reported in the aforementioned documents,” says Surana.
Will your AIS also show forex transactions done using cash?
Experts explain that while AIS does not capture foreign transactions made with cash, it will show information on foreign currency purchased from an authorized entity.
“Cash transactions in foreign currency are not reported in the AIS unless they are part of a larger financial transaction that is reported by a financial institution or if you have purchased foreign currency,” Jaiswal.
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What happens if you shop from international websites while sitting in India?
There are many international websites that accept Indian credit card payments. If you shop on one of these websites and use your credit card, these transactions will appear in your AIS. However, you only need to file an ITR if your income level is above the basic exemption limit or if you have conducted certain specified transactions.
“If a person doesn’t have any taxable income, they generally don’t need to file an Income Tax Return (ITR),” says Jaiswal.
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What if you invested in foreign stocks or other securities?
Experts say that any foreign-sourced income as well as foreign assets needs to be reported in the ITR. “Any taxpayer holding a foreign asset outside India and/or earning any foreign income would be mandatorily required to file ITR. Non-furnishing of ITR in such a case would not only attract interest but will have penal consequences as well,” says Surana.
