Low turnover, high foreign remittances: 6 red flags that could put taxpayers under the taxman’s scanner
Large foreign remittances that appear disproportionate to a taxpayer’s turnover or business activity could attract closer Income Tax Department scrutiny. Tax expert CA Suresh Surana flags six key concerns, including mismatched business activity, weak documentation, common overseas beneficiaries and incorrect withholding tax.scrutiny from the Income Tax Department
- Aug 28, 2026,
- Updated Aug 28, 2026 8:48 PM IST
High-value outward foreign remittances that appear disproportionate to a taxpayer’s reported turnover, income or business activity could attract closer scrutiny from the Income Tax Department. Tax expert CA Suresh Surana said the department’s data-driven approach may prompt it to examine the source and purpose of overseas payments, their commercial rationale and the documentation supporting them.
While foreign remittances are a legitimate part of international business, transactions that do not align with a taxpayer’s financial profile or stated business activities can raise questions about their genuineness and economic substance.
Here are six red flags that could attract tax scrutiny:
1. Remittances disproportionate to turnover
Large overseas payments by businesses reporting very low turnover, negligible income or limited business activity could raise questions about the source and purpose of the funds.
According to Surana, the proportionality of the remittance to the taxpayer’s overall financial profile is an important factor that authorities may examine.
MUST READ: Can a CA be exposed by a client’s suspicious foreign remittance? What Form 15CB means
2. Payment does not match the business
A remittance described as payment for software, consultancy, freight, imports or other services could come under scrutiny if it does not correspond with the taxpayer’s actual line of business.
Surana said authorities may examine whether the stated purpose of the payment is consistent with the company’s operations and whether there is evidence that the underlying goods or services were actually received.
3. Weak or inadequate documentation
Invoices or agreements alone may not be sufficient if the taxpayer cannot establish the substance of the transaction. Authorities could examine purchase orders, contracts, proof of service delivery, import documentation and payment trails.
Surana said inadequate or inconsistent documentation can make it difficult for a taxpayer to establish the commercial rationale behind an overseas payment.
4. Overseas entities with little evidence of genuine operations
Transactions involving foreign entities that appear to have limited business activity could attract additional attention. Authorities may examine the recipient’s identity, operations and beneficial ownership where concerns arise over whether an entity is being used primarily to route funds.
Surana said the absence of evidence supporting genuine business operations can raise questions around the commercial substance of the transaction.
ALSO READ: ₹1 crore foreign asset disclosure could cost 60% under FAST-DS: Check the math
5. Multiple Indian entities paying the same overseas beneficiary
Repeated payments to a common overseas recipient by several otherwise unrelated Indian businesses could also become a focus of scrutiny.
According to Surana, authorities may examine whether such patterns indicate coordinated arrangements, fund routing or structures involving intermediary entities.
6. Incorrect withholding tax position
The tax treatment adopted for an overseas payment is another critical area. Depending on the nature of the transaction, a payment could potentially be classified as royalty, fees for technical services, interest, business income or another category of taxable income.
Surana said businesses need to correctly determine their withholding tax obligations, including the applicable rate and any gross-up implications where the Indian payer bears the tax.
Where benefits under a Double Taxation Avoidance Agreement are claimed, taxpayers may also need to establish eligibility through documents such as a Tax Residency Certificate and Form 10F.
MUST READ: Foreign assets disclosure scheme opens today: Who can declare undisclosed assets and income?
What businesses should do
Surana said businesses making large foreign remittances should maintain a clear documentation trail covering the commercial rationale, underlying agreements, invoices, delivery or service evidence, source of funds and tax treatment.
The broader concern is not the size of the remittance alone, but whether the payment is proportionate, commercially justified, properly documented and correctly taxed. Where these elements do not align, a transaction is more likely to attract questions from the tax authorities.
High-value outward foreign remittances that appear disproportionate to a taxpayer’s reported turnover, income or business activity could attract closer scrutiny from the Income Tax Department. Tax expert CA Suresh Surana said the department’s data-driven approach may prompt it to examine the source and purpose of overseas payments, their commercial rationale and the documentation supporting them.
While foreign remittances are a legitimate part of international business, transactions that do not align with a taxpayer’s financial profile or stated business activities can raise questions about their genuineness and economic substance.
Here are six red flags that could attract tax scrutiny:
1. Remittances disproportionate to turnover
Large overseas payments by businesses reporting very low turnover, negligible income or limited business activity could raise questions about the source and purpose of the funds.
According to Surana, the proportionality of the remittance to the taxpayer’s overall financial profile is an important factor that authorities may examine.
MUST READ: Can a CA be exposed by a client’s suspicious foreign remittance? What Form 15CB means
2. Payment does not match the business
A remittance described as payment for software, consultancy, freight, imports or other services could come under scrutiny if it does not correspond with the taxpayer’s actual line of business.
Surana said authorities may examine whether the stated purpose of the payment is consistent with the company’s operations and whether there is evidence that the underlying goods or services were actually received.
3. Weak or inadequate documentation
Invoices or agreements alone may not be sufficient if the taxpayer cannot establish the substance of the transaction. Authorities could examine purchase orders, contracts, proof of service delivery, import documentation and payment trails.
Surana said inadequate or inconsistent documentation can make it difficult for a taxpayer to establish the commercial rationale behind an overseas payment.
4. Overseas entities with little evidence of genuine operations
Transactions involving foreign entities that appear to have limited business activity could attract additional attention. Authorities may examine the recipient’s identity, operations and beneficial ownership where concerns arise over whether an entity is being used primarily to route funds.
Surana said the absence of evidence supporting genuine business operations can raise questions around the commercial substance of the transaction.
ALSO READ: ₹1 crore foreign asset disclosure could cost 60% under FAST-DS: Check the math
5. Multiple Indian entities paying the same overseas beneficiary
Repeated payments to a common overseas recipient by several otherwise unrelated Indian businesses could also become a focus of scrutiny.
According to Surana, authorities may examine whether such patterns indicate coordinated arrangements, fund routing or structures involving intermediary entities.
6. Incorrect withholding tax position
The tax treatment adopted for an overseas payment is another critical area. Depending on the nature of the transaction, a payment could potentially be classified as royalty, fees for technical services, interest, business income or another category of taxable income.
Surana said businesses need to correctly determine their withholding tax obligations, including the applicable rate and any gross-up implications where the Indian payer bears the tax.
Where benefits under a Double Taxation Avoidance Agreement are claimed, taxpayers may also need to establish eligibility through documents such as a Tax Residency Certificate and Form 10F.
MUST READ: Foreign assets disclosure scheme opens today: Who can declare undisclosed assets and income?
What businesses should do
Surana said businesses making large foreign remittances should maintain a clear documentation trail covering the commercial rationale, underlying agreements, invoices, delivery or service evidence, source of funds and tax treatment.
The broader concern is not the size of the remittance alone, but whether the payment is proportionate, commercially justified, properly documented and correctly taxed. Where these elements do not align, a transaction is more likely to attract questions from the tax authorities.