The Enforcement Directorate (ED), which probes irregular foreign currency transactions and money laundering, has been scanning the funds transfer by the NRIs to the NRE (Non-resident external) bank accounts, the transaction which was once considered to be safe and away from the eyes of authorities.

The ED has slapped notices to several NRI after committing transaction to disclose their origin of funds and for buying properties. Reports said that many such persons have been asked to meet officials of ED to explain their source of funds. While many transfers are genuine, there are instances where the money moved in a suspicious way to evade taxes.

A tax practitioner, who is advising several individuals who are in process of replying to the ED notices, has been quoted by a newspaper daily as saying, “In one case a person has transferred large amounts to his daughter’s NRE account after she attained NRI status by staying abroad for 182 days. In the past, such fund movements would not have drawn the attention of investigative agencies. When the man claimed that the fund was commission income generated abroad, he was asked to furnish the contract with the overseas client.”

According to the reports, if someone cannot explain their source of funds it would only be a violation of the Foreign Exchange Management Act (FEMA) but also expose the person to tax demands and penalty.

Mitil Chokshi, partner at a chartered accountants firm, Chokshi and Chokshi said, ““As a citizen of India (though not a resident Indian from tax or FEMA perspective), an individual is obliged to respond to any question raised by any regulatory authority be it tax, FEMA, ROC, etc. However, such individuals are not obliged to provide specific details about the transaction which are entered outside India as a non-resident. Typically, such notices and queries are deftly replied.”

By Prajakt K