Thanks Gulshan! I need to put the facts straight here. I received a mail from him and answered his query but I'm not sure if that reached him. Now coming to the very nature of the transaction he has talked about.It involves less application of Income Tax provisions than the act I have mentioned. On the face of it, it looks an irregular transaction. What I could make out is that he has been receiving payments from sale effected on behalf of a foreign national without any formal legal authority and any legal instrument describing his services and permission from relevant authority and remitting money on an arbitrary basis to the same foreign national - the entire process is likely to bring scrutiny under various acts. As far as Income Tax Act is concerned it doesn't differentiate between legitimate and illegitimate income and one has to pay tax on income. In this respect it's also a problem to term the source of this income.Is he earning by rendering any service recognized under FEMA? That's the central question.
The transaction appears irregular as the seller is Pakistani. He receives cash in his account of that foreign citizen and then remits to him after deduction his charges. His income is only the charges deducted by him. Income tax Department is not bothered about legality of income, as rightly commented. This income can be classified as Income from other sources. The source of income is thus clear but the question is about legality of the transaction. This could be violation of FEMA.
It is advisable that he stops this type of transactions and files income tax return through an advocate or C.A. for the previous years till 31-3-2011.
G. K. Ajmani Tax consultant http://gkajmani-mystraythoughts.blogspot.com/
Income of a stray and casual nature can be clubbed under 'Income from Other Sources but not a regualr stream of income!
Thanks. strictly speaking he cannot. He may be getting every month the income by deducting from Pakistani collaborator's before remitting to him. It may not be feasible to disclose his income as business income for obvious reasons. He has to classify his income under some head.
G. K. Ajmani Tax consultant http://gkajmani-mystraythoughts.blogspot.com/
