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As the pandemic recedes, traveling is on everyone’s mind. As foreign travel gains momentum in 2022, it helps to be aware of the implications of foreign travel on income tax return filing and disclosures.

Individuals are required to disclose any foreign travel expenditure above 2 lakh in their income tax return (ITR). This expenditure may be incurred by the individuals themselves or spent on behalf of any other person. For example, Madhu travels to Dubai in March 2022 and spends 2.1 lakh on this. Her income from business/profession is 2.4 lakh and so she believes she is not required to file her tax returns.

Generally, individuals are required to file tax returns only if their total income exceeds the maximum amount not chargeable to tax, subject to certain conditions. In the Finance Bill, 2019, with the objective of ensuring better governance, the government has through an amendment included the following categories and widened the scope of income tax-return filing requirement for individuals/HUFs who were otherwise not required to file a tax return:

1. Those with an electricity consumption bill of over 1 lakh.

2. Those with foreign travel expenditure for self or someone else of 2 lakh or more.

3. Those with a deposit of an amount or an aggregate of the amounts exceeding 1 crore in a current account.

4. Persons claiming the benefit of tax exemption for long-term capital gains (LTCG) under various provisions of section 54 of the income tax (I-T) Act.

This amendment ensured that people who have the ability to incur large expenditure do not evade the liability of filing tax returns or escape from paying tax.

Now, since for FY 2021-22, Madhu has spent more than 2 lakh on foreign travel, she will be required to file tax returns and disclose the expenditure in her ITR.

Let’s take another example. Suppose, Mina travels to Dubai in March 2022 and spends 2.1 lakh. She does not have any income and hence does not regularly file income tax returns (ITR). All the expenses for the trip are sponsored by her son, Alpesh. Now, since for the FY 2021-22, Alpesh has spent more than 2 lakh on foreign travel, he will be required to file an ITR and disclose the expenditure in his ITR even though he has not travelled but has only spent the amount.

Here’s another example. Say, Asha travels to Dubai on a company sponsored trip in March 2022 and the company incurs an expense of 2.1 lakh on this trip. She believes that since it is foreign travel, she will have to file an ITR and disclose this in it. However, the requirements stated above are only for expenditure incurred from one’s own source of income and hence company-sponsored foreign travel is out of its purview. Now, suppose after her official trip, she plans to extend her visit and go to Abu Dhabi and her personal expenditure comes to 2.5 lakh. She will have to file ITR and make the disclosure for 2.5 lakh spent out of her own source of income.

It is pertinent to note that even if the amount is spent in foreign currency and is equivalent to 2 lakh or more, the aforementioned income tax-return filing and disclosure requirements are applicable. Also, the limit of 2 lakh stated above is the aggregate limit for a financial year.

Suppose, during FY 2021-22 Harsh travelled to Nepal and spent 80,000 and then he travelled to Dubai where he spent 1 lakh. After that, he visited Singapore and spent 90,000. He believes that he is not required to file an ITR or disclose these expenses as he spent less than 2 lakh on each trip. This belief of Harsh is incorrect as the limit of 2 lakh is at the aggregate level for the financial year.

Since his aggregate foreign travel expenditure exceeds 2 lakh, Harsh will be required to file an ITR and disclose these expenses.

Nitesh Buddhadev is founder of Nimit Consultancy.

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