As the pandemic recedes, travel is on everyone’s mind. As overseas travel gains momentum in 2022, it’s worth being aware of the implications of overseas travel on tax filing and disclosure.
Individuals are required to disclose any overseas travel expenses above ₹2 lakh in their tax return (ITR). These expenses may be incurred by the persons themselves or made on behalf of any other person. For example, Madhu travels to Dubai in March 2022 and spends ₹ 2.1 lakh on that. His business/professional income is ₹2.4 lakh and so she thinks she is not required to file her tax returns.
Generally, individuals are only required to file tax returns if their total income exceeds the maximum non-taxable amount, subject to certain conditions. In the Finance Bill 2019, in an effort to ensure better governance, the government has, through an amendment, included the following categories and expanded the scope of tax reporting obligation for individuals/HUF who were not otherwise required to file a tax return:
1. Those whose electricity consumption bill exceeds ₹1,000,000.
2. Those who have overseas travel expenses for themselves or someone else ₹2 lakh or more.
3. Those who have a deposit of an amount or set of amounts exceeding ₹1 crore in a checking account.
4. Persons claiming the benefit of the Long Term Capital Gains (LTCG) tax exemption under various provisions of Section 54 of the Income Tax Act (IR ).
This amendment ensured that people who have the capacity to incur large expenses would not evade the obligation to file tax returns or evade payment of tax.
Now, since FY 2021-22, Madhu has spent more than ₹2 lakh on overseas trips, she will have to file tax returns and disclose expenses in her ITR.
Let’s take another example. Suppose Mina goes to Dubai in March 2022 and spends ₹2.1 million. She has no income and therefore does not regularly file income tax returns (ITRs). All travel expenses are funded by his son, Alpesh. Now, since fiscal 2021-22, Alpesh has spent more than ₹2 lakh traveling abroad, he will have to file an ITR and disclose the expenses in his ITR even if he did not travel but only spent the amount.
Here is another example. Let’s say Asha travels to Dubai on a company-sponsored trip in March 2022 and the company incurs an expense of ₹2.1 lakh on this trip. She believes that since this is an overseas trip, she will have to file an ITR and disclose it there. However, the requirements set out above only relate to expenses incurred from one’s own source of income and therefore company-sponsored overseas travel is outside of the company’s purview. Now suppose after her official trip she plans to extend her visit and go to Abu Dhabi and her personal expenses come to ₹2.5 million. She will have to file an ITR and make the disclosure for ₹2.5 lakh spent on own source of income.
It is pertinent to note that even if the amount is spent in foreign currency and is equivalent to ₹2 lakh or more, the above tax reporting and disclosure requirements apply. Also, the limit of ₹2 lakh given above is the aggregate limit for one financial year.
Suppose that in the financial year 2021-22, Harsh traveled to Nepal and spent ₹80,000, then he traveled to Dubai where he spent ₹1,000,000. After that he traveled to Singapore and spent ₹90,000. He believes he is not required to file an ITR or disclose these expenses since he spent less than ₹2 lakh each trip. This belief of Harsh is incorrect because the limit of ₹2 lakh is at the aggregate level for exercise.
Since its total outbound travel expenditure exceeds ₹2 lakh, Harsh will have to file an ITR and disclose these expenses.
Nitesh Buddhadev is the founder of Nimit Consultancy.