Tax­men Ques­tion Source of Se­cu­rity for Loans Abroad

Many HNIs have taken bank loans from out­side In­dia, of­fer­ing other as­sets as se­cu­rity

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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.

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