The move will help the exchequer gather Rs 500-600 crore in advance every month, said government sources.
This was proposed after an analytical study by the Income Tax Department. The study revealed people misused the legal route to launder money. Further, it was also detected that misuse was mostly by those who were sending over Rs 7 lakh and that was how the threshold was decided, said an official privy to the matter.
The government, however, said the taxpayer could claim refund in the income tax return and hence it was not double taxation, an official added.
But on the flip side, this process would increase the compliance burden because claiming refund would be cumbersome, the official said.
According to him, there is a proper record of these remittances
with the central bank as every such transaction quotes the permanent account number (PAN).
Meanwhile, industry players and some companies have sought a review of this new tax in a recent meeting with Finance Minister Nirmala Sitharaman in Mumbai. Industrialists are of the view that whatever money goes abroad under the RBI scheme is legitimate and comes under the purposes listed, such as education and investment. So taxing that money again is an additional burden on taxpayers.
Further, this would also hit working capital for businesses till the time credit is not claimed. The LRS, which allows every individual to send up to $250,000 abroad annually, has been under central agencies’ lens since 2018. The probe agencies have detected a significant increase in the outflow of Indian money, especially to Thailand, Singapore, Hong Kong, and Dubai.
According to estimates by probe agencies, these countries received Rs 20,000-30,000 crore in 2018. Thailand itself recorded Rs 5,000 crore sent by Indians in 2018.
The probe agencies last year conveyed their concern on this to the Ministry of Finance and the RBI in 2019. Sources said federal agencies had sought immediate scrutiny in the matter and also asked for tightening the LRS and other legitimate routes of such kind.
In order to circumvent regulatory attention, forex dealers create fake invoices under the LRS. There are possibilities that one person could have more than five accounts using the route to send money, another official said, explaining why the records with banks never reflected such dubious transactions. Though the person taking this route is bound to give undertakings stating the purpose of remitting money, there are cases where the identity of the person is hidden, or, in some cases, the explanation given on the forex dealing is not clear. The RBI has laid down guidelines on remittances
of funds. There are separate guidelines for residents and non-residents.