• Notification Date: 26-05-2023
• Notification No: N/A

Zerodha's Nithin Kamath to 'Increase penalties, act quickly' to Curb Income Tax Evasion

Days after Finance Ministry imposed a 20 per cent tax on collection at source (TCS) on credit card usage outside India to track high-value overseas transactions, Zerodha co-founder and CEO Nithin Kamath on Saturday said the government had to do whatever to curb underreporting of income but the better way was to deter people by increasing penalties and acting quickly on financial violations.  

Kamath further said that those who want to evade taxes or break rules will always find loopholes. "Govt has to do whatever to curb underreporting of income & tax evasion. Easier said than done, but maybe the better way is to deter people by increasing penalties & acting quickly on financial violations. Those that want to evade taxes or break rules will always find loopholes," he wrote on Twitter. 

Earlier this week, the Finance Ministry brought international credit card spending under the RBI's Liberalised Remittance Scheme (LRS). The inclusion will attract 20 per cent tax collection at source on credit card usage outside India. The move is aimed at tracking high-value overseas transactions. However, the decision faced serious backlash with many questioning the rationale behind the 20 per cent tax from 5 per cent earlier. 

Sushant Sareen, a senior fellow at ORF, questioned the levy saying, "If you are targeting non-taxpayers, why are you penalising taxpayers and creating massive cash flow problems for them by blocking their funds for a year (assuming refunds come in time)? Non tax payers are using the banking system or credit cards which makes them easily traceable." 

BJP's Amit Malviya, however, said that the confusion around the TCS issue was "unwarranted" as "it doesn’t change" anything except bring parity between the usage of Debit and Credit cards abroad. He said the government's objective was to help track "high-value overseas transactions, money laundering". "It aims at curbing the circumvention of LRS (Liberalized Remittance Scheme) limits via the use of credit cards," he said. 

Malviya said that TCS was already there on the debit card. While on a visit abroad, he said, a person could use international debit cards or other methods or international credit cards for undertaking current account transactions. He said payments by debit cards have been treated as LRS, even earlier. "By bringing TCS on Credit Card, it plugs the loophole," he said. 

On Friday, the ministry issued a clarification and said to avoid any procedural ambiguity, it had been decided that any payments by an individual using their international debit or credit cards upto Rs 7 lakh per financial year will be excluded from the LRS limits and hence, will not attract any TCS. "Existing beneficial TCS treatment for education and health payments will also continue," the government said.