In the wake of private firms being asked to dematerialise shares, the Income Tax (IT) Department is dipping into the repository of data, requesting NRIs and offshore companies to explain their investments in unlisted shares.

As stocks bought at a steep premium give rise to questions on money-laundering, NRIs would have to disclose the money source, besides sharing valuation reports to justify the prices paid to acquire the stocks.

It is believed that in the past few weeks alone, NRIs were asked to surrender information on securities purchased between 2019-20 and 2022-23.

Those receiving notices in this connection were expected to respond promptly, and explain the total transactions, submitting necessary documents on fund sources and valuation reports.

NRIs with no income from India are likely to not file IT Returns. This trend is set to change.

Since PAN (permanent account number) is required for opening demat accounts, IT officials have begun to scrutinise the ownership of demat shares. Shares bought at less than the fair value could trigger a tax demand from investors.

The law, under Section 148A, mandates tax officers to first issue a precursor to a reopening notice, and seek taxpayers’ response, before deciding on whether it is a fit case to reopen or not.

The IT department is thoroughly investigating the actual beneficial owners behind the investments.

Some of the other queries and data sought by the IT department include names, educational qualifications and residential status of directors; minutes of board meeting where the investment decision was taken, and bank statements to prove the investors’ creditworthiness.

Though most investors are able to provide details on identity and valuation, establishing the source of funds continues to remain a challenge. – Image source: freepik – editor@nrifocus.com