Dear readers, in past Section 133(6) of Income Tax Act 1961 is used mainly in case of scrutiny to gather more and more information related to assessee, whose case is selected for scrutiny. But in last 2 years with the use of AI and AIS/ TIS reports this section becomes a goldmine for Income tax department. Income Tax department has used this section to gather more information/ clarification from assessee whose ITR data is not matching with AIS/ TIS reports.
In the initial stage, this section is used to catch resident tax payers those has evaded taxes but in last few months now the Non residents are on the target list. In the past few months, many queries are received from NRIs that, they are receiving Section 133(6) notice from Indian Income tax department; however, they are not liable to file their ITR in India. In this blog we will discuss about the transactions which may invite Section 133(6) notice for NRI and will discuss a real case study of NRI.
Transactions Potentially Attracting Notice
Several transactions undertaken by NRIs may attract the interest of the Income Tax Department, prompting them to issue notices under Section 133(6). These transactions include but are not limited to:
1. High-Value Transactions: Any transaction involving significant sums of money, whether in the form of investments, share trading, mutual fund investments may attract scrutiny.
2. Property Transactions: NRIs engaging in property transactions, such as buying, selling, or renting property in India, are subject to scrutiny to ensure compliance with tax regulations.
3. Foreign Income and Domestic Income: Income earned by NRIs from foreign sources and domestic sources, including salaries, investments, must be accurately reported to avoid potential tax evasion issues.
4. Bank Transactions: Large deposits, withdrawals, or transfers in NRI bank accounts can raise red flags and lead to inquiries by the Income Tax Department.
5. Business Transactions: NRIs involved in business ventures in India or with Indian entities may face scrutiny regarding their financial transactions, profits, and tax liabilities.
6. High Value transactions in NRE and NRO Bank Accounts: If NRI person do high value transactions in NRE or NRO bank accounts or create high value FDRs then it may raise a question in income tax department mind to know the sources of these transactions/ investments etc.
Above are illustrative lists of transactions which may invite notice U/s 133(6) of Income Tax department to Nonresident of India. Now, we will discuss about a real case study of NRI whose has done high value transaction in his NRO/ NRE bank accounts and faced the heat of Section 133(6) of Income Tax Act, 1961
Mr. A is Citizen of India and staying in Britain from last 20 years and qualifies the criteria of becoming Non Resident of India as per Indian Income Tax Act, 1961. He is having NRE and NRO account in India and having no source of Income in India except Interest income received on NRE, NRO Bank account and rental income from his Indian Property. During the period under consideration, Mr. A has transferred funds from his foreign bank account to his NRE and NRO bank account and created FDR of Rs.1 Crore in India. Further, he is earning rental Income of Rs.2 Lakh per annum on his let out property in India. During the year, he has earned interest of Rs.6Lakh in his NRE bank account and FDR account and Rs.15000/- interest income in his NRO bank account. These transactions created red flag against his PAN number and department issued notice U/s 133(6) of Income Tax Act, 1961.
Now, Mr. A has to provide the source of these investments and to prove that his income is not taxable in India and he is not liable to file his ITR in India. There are many Indians who are non residents of India and earning such kind of Income from Indian sources but not filing any ITR and paying taxes in these cases. Here, please note that, firstly you must respond to Section 133(6) notices within specified time period. In case of default, the case may be proceeded further and decided ex-party as per law.
In Case of Mr. A, interest Income earned from NRE Bank account and FDR is not taxable in India but rental income and interest received on NRO bank account is taxable in India. If we club both incomes then it amount to Rs.155000/- (after giving standard deduction benefit of house property) which is taxable in India but he is not liable to file ITR in India because taxable amount is within the exemption limit as per Indian Income Tax Act, 1961. But to avoid such kind of notices in future, it is better to start filing ITR in India and to disclose all taxable and non taxable Income in ITR.
In this case Mr. A has to submit a strong reply with Income Tax Department with documentary evidences so that no further course of action will be taken in this case.
Author’s Note: There are many instances where NRI does not respond to Section 133(6) notices and faces a demand notice from department. In the above case, if Mr. A does not respond to section 133(6) of Income Tax Act, 1961 then how the department knows the actual position and they decide the case on the basis of information available with them. So you must respond to each and every notice received from department to avoid any hassle at later stage.
Disclaimer: This article is for the purpose of information and shall not be treated as solicitation in any manner and for any other purpose whatsoever. It shall not be used as legal opinion and not to be used for rendering any professional advice. The author will not be held responsible for any lose, if occur after using above information. Kindly consult your professionals before taking any action. This article is written on the basis of author’s personal experience and provision applicable as on date of writing of this article. Adequate attention has been given to avoid any clerical/arithmetical error, however; if it still persists kindly intimate us to avoid such error for the benefits of others readers. The Author “CA Shiv Kumar Sharma” can be reached at mail –firstname.lastname@example.org and Mobile/WhatsApp–9911303737.