Here's how those big foreign expenses affect your taxes

Anyone spending over ₹2 lakh on foreign travel must file ITR even if not liable to pay tax

- Aprajita Sharma

Say you're planning a vacation abroad with your family. Your spouse, whose income isn't large enough to be taxed, books a ₹5-lakh overseas tour package using her bank account. You all have a great time and return refreshed.

A few months later your wife receives a notice from the Income Tax Department for not disclosing high-value transactions and not filing an income tax return (ITR). This comes as a surprise because your wife doesn't pay income tax.

So what happened? Well, if you conduct a high-value foreign transaction, it doesn't matter that you don't pay income tax.

According to the seventh proviso to Section 139(1) of the Income Tax Act, even if your income is tax-exempt, you still need to file an ITR if you spend more than 2 lakh on foreign travel for yourself or anyone else.

Tour operators or banks are required to report the PAN of the buyer in their statement of financial transactions (SFT) in case of high-value transactions. This is how the government finds out which people have large foreign expenditures but pay no income tax.

What about those who pay income tax and spend more than 2 lakh on foreign travel? They are not legally required to disclose foreign travel expenses in the ITR just because they exceed ₹2 lakh.

"The seventh proviso to Section 13901) only applies to people who are not otherwise required to file an ITR.

The ITR forms will have the following column: 'Are you filing return under seventh proviso to section 139(1)?". If you select 'No' (because you already have taxable income), it won't ask for the details of the foreign travel expenses," said chartered accountant Ashish Karundia.