No scrutiny on high value financial deals if your tax returns are regular

Q: I have been paying my taxes on the rental income I earn in India both before I became non-resident and after. I wish to renovate my property in Indore which will cost me a substantial amount. I am worried that this may lead to scrutiny by the tax department. Is this possible?
- S.L. Garg, Dubai

A: You need not worry about the possibility of the tax authorities investigating large value transactions as you have been filing your tax returns regularly and disclosing your full taxable income. Further, make sure that all expenses you incur are fully accounted for and adequate documentary records and vouchers are maintained. Payments should only be made by account payee cheques and purchase of goods from shops should be made using your debit/credit cards.

If the tax department finds that you have made cash payments, your assessments will be subjected to scrutiny. Unaccounted cash, if used, will be treated as your unexplained income and tax will be levied thereon at the flat rate of 60 per cent, apart from a penalty being levied. Therefore, you should deal with an interior designer or decorator who will receive full cheque payments. The tax department has assured assessees that even large scale transactions will not be enquired into provided the value of such transactions is commensurate with the income disclosed in the tax returns.

Q: There is heavy truck traffic on India's highways and roads. This is partly due to the fact that railways are not in a position to handle the freight traffic. Is this going to be remedied in the near future?
- R.A. Manjrekar, Bahrain

A: The dedicated freight corridor (DFC) between New Delhi and Jawaharlal Nehru Port in Mumbai is likely to become operational next year. This corridor will run parallel to the current railway line on the Mumbai-Delhi sector. The DFC has been financed by the World Bank and the Japan International Co-operation Agency. Once the DFC starts, longer freight trains will be used and the tonnage capacity will go up. The speed of such trains will also improve dramatically. This will reduce the traffic and congestion on Indian highways and roads.

Multimodal logistics parks are also being set up in 35 clusters. Roll-on-roll-off service is also being started where trucks will be loaded on railway flat wagons and transported across the country. Once the trucks reach their destination by rail, the goods will be delivered by trucks to factories. This will also decongest Indian highways.

Q: Is options trading permitted in commodity markets? Indian companies have been raising large amounts through public issues. Is there adequate monitoring of the use of such funds since investors are apprehensive that the funds could get diverted?
- T. Swaminathan, Muscat

A: Options trading in the commodity market has now been permitted by the Securities and Exchange Board of India (Sebi). The regulator has also permitted brokers to integrate their equity and commodity brokerage arms into a single entity. Companies which have raised more than Rs1 billion through public issues will now be monitored.

Earlier, the monitoring process was set in motion only if the issue size was Rs5 billion or more. Hereafter, all companies which raise Rs1 billion or more from the primary equity market will be subject to supervision to oversee the use of the proceeds raised through initial public offerings, foreign public offerings or rights issues. This is being done to prevent funds from being siphoned off so that investors' interests are protected.

The writer is a practising lawyer specialising in tax and exchange management laws of India. Views expressed are his own and do not reflect the newspaper's policies.

Source: Khaleej Times