Home >Opinion >Tracking foreign travel expenses helps build taxpayer profile

A few months ago, there was much hue and cry about the requirements introduced in the new income tax return forms of giving of details of expenses incurred on foreign travel by a taxpayer. The return forms were withdrawn after protests by taxpayers, and new income tax return forms have been notified, where such details are not required to be given. All that has to be given now is the passport number.

This does not, however, mean that taxpayers can get away with spending on foreign travel with unaccounted money. It is a well known fact that large amounts of black money is utilised for foreign travel. A recent amendment of the Liberalised Remittance Scheme (LRS) for resident individuals under the Foreign Exchange Management Act, 1999, would now enable easy tracking by the government of such expenditure.

With effect from 1 June 2015, the annual limit under LRS was enhanced from $125,000 to $250,000. However, certain expenditure limits, which were earlier separate from the LRS limits, are now included within this limit of $250,000. One such limit is that of $10,000 for Basic Travel Quota (BTQ).

A better system

BTQ was the scheme under which you were entitled to acquire foreign exchange for foreign travel for personal purposes, including for making payments for hotels, overseas train and bus travel, tours, and other such things. You had to just fill in a simple form with a declaration, and provide a copy of your ticket and passport, on the basis of which you could draw foreign exchange from a bank or a money changer. If you were doing your booking through a travel agent, the agent would acquire the foreign exchange in your name under your BTQ limit.

Now that BTQ is a part of the LRS limit, the new LRS forms apply when you draw foreign exchange for the purposes of your foreign travel. Besides your name, address and bank account number, you now also need to furnish your Permanent Account Number (PAN) under the new LRS form.

You also have to state the sources of funds from which you are funding the purchase of foreign exchange. Further, you have to provide details of all transactions made under the LRS during the financial year, prior to the intended transaction, stating the date, amount and bank or money changer through which such transactions were executed.

Banks as well as money changers are required to comply with know-your-customer (KYC) guidelines and anti-money laundering (AML) rules, before release of the foreign exchange. In this regard, banks would have to furnish a monthly statement of all such transactions with the Reserve Bank of India, giving details only of total number of persons utilising the facility and the amount utilised.

All this would mean that drawing foreign exchange for foreign travel would now be subject to more stringent verification of identity, PAN and address, and that there would now be a clear trail of transactions effected in foreign exchange through banks and money changers.

It is, therefore, only a matter of time that the tax authorities lay down a procedure for banks and money changers to file a statement giving details of such foreign exchange drawn with the tax authorities, which can be sorted by the PAN of the applicants.

Likely hurdles

There would, of course, be various issues as to whether a person who does not have a PAN can draw foreign exchange for foreign travel; what happens in cases where the foreign travel is funded by another person; and others. These issues will hopefully get sorted out soon.

This method of collection of information by the tax department, with its enhanced computer systems, is a far superior one than the earlier proposed method of asking a taxpayer to give such information in her income tax return. This is also in tune with the information gathering exercise being carried out by the Income Tax Department in respect of other financial transactions, such as purchase of property and transactions on stock exchanges. This will help in building a 360-degree profile of a taxpayer’s transactions.

Therefore, this is a welcome step being taken by the government to address the problem of local black money. Of course, the success of the initiative would depend on proper compliance by the banks and money changers, as well as proper processing and utilisation of such data collected by tax authorities.

Gautam Nayak is a chartered accountant.

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