Taxmen Question Source of Security for Loans Abroad
Many HNIs have taken bank loans from outside India, offering other assets as security
Mumbai: Foreign bank loans and the sources of security given to obtain those loans by investment companies owned by Indians whose names appeared in the Panama Papers leaks seem to have now come under the income-tax department’s scrutiny.
This week, I-T department officials questioned such high net-worth individuals (HNIs) about their assets bought outside India, people familiar with the development said.
The revenue officials in some cases have also questioned the tax consultants and lawyers advising these HNIs and sought the bank statements of these transactions.
Officials suspect that while the whole transaction of buying property abroad may not be technically illegal, security used to buy such property could have been bought through unaccounted money, sources said.
In some cases where there is no security given by the HNIs for buying asset, I-T officers want to know how the loan EMI is being prepaid. If the HNIs have not disclosed such a transaction — either of EMI or income received (rent, dividend, etc.) from such an asset — they can be in trouble, said another consultant based in New Delhi, they said.
Speaking to ET on condition of anonymity, a tax consultant explained the whole circle of transaction regarding one of his clients who had to face I-T query. The Indian government allows sending $250,000, which is about .₹ 1.66 crore, outside the country in a year under the liberalised remittance scheme (LRS).
In this particular instance, an Indian businessman had opened an investment company in British Virgin Islands (BVI) by using the services of Panama-based law firm Mossack Fonseca. He had then remitted $250,000 in the company. The company then bought a house in London worth $750,000. The additional money of $500,000 was borrowed from a British bank.
Now, in this case, the revenue department wants to know the security that was given to obtain the loan of $500,000.
Revenue officials suspect that the source of security given to obtain such loans are mainly other real estate properties, shares held in some listed or unlisted companies, and bank deposits in some cases.
“In most cases, the security would have been given to get such bank loans. And some security has to be shown to get these loans. There is a suspicion that the real estate or other assets used as security could be bought through black money,” a person with direct knowledge of the matter said.
Once an HNI discloses the security against which such a loan was obtained, revenue officials would investigate the source of income to get that security. In many cases, this is where many HNIs could get uncomfortable sharing the details. “Many HNIs have bought real estate in Europe, mainly in London, in the last 15 years. In some cases they had even taken loans, but the Panama Leaks only discloses some of their companies,” said a lawyer to one such HNI.
The problem, he added, is that if one such transaction is in public domain, the revenue officials can trace the other transactions. In most cases, HNIs have used the Panama law firm to set up a company and buy real estate in other countries. Some of the HNIs may have remitted more money outside India than what is legally permitted. There is a buzz in the Mumbai I-T department that the central government could get papers from Panama by May15. This means that the investigating agencies could go beyond what is there in the public domain.
An email query sent to the office of revenue secretary did not elicit any response as of press time on Thursday.
Responding to the same query, the Central Board of Direct Taxes (CBDT) said: “It is not possible to share details of ongoing investigations. There is no update on the issue at present. A formal press release on the issue will be circulated as and when available.”
Recently, the International Consortium of Investigative Journalists (ICIJ) reported stories in several countries after about 11.5 million documents from the world’s fourth largest offshore law firm Mossack Fonseca were leaked to a German newspaper.