NRIs Buying Unlisted Shares In India Come On Income Tax Department’s Radar Over Money Laundering Concerns

The Income Tax Department is sending notices to offshore companies and non-resident Indians (NRIs) regarding unlisted share investments between FY20 and FY23 on suspicion of tax evasion, round-tripping, and valuation manipulation, The Economic Times reported.

The department is going through the repository of data after all private companies were asked to dematerialise shares by June 2025.

In the last few weeks, the department has asked NRIs to furnish details such as the source of funds invested and valuation reports to justify the prices paid to acquire the stocks.

According to the report, while shares bought at less than the fair price would attract provisions under direct tax laws and the Foreign Exchange Management Act, it is the sharp premium that could raise concerns of money laundering and round-tripping.

Shares bought at less than fair value could prompt a tax demand from investors, while abnormally high valuations could spark suspicion that closely held companies were used to bring back undisclosed funds stashed abroad through irregular past transactions such as under-invoicing of exports, over-invoicing of imports, or sham imports.

“Persons receiving such notices should respond promptly and diligently, explain the entire transaction along with requisite documents around source of funds, valuation adopted, including valuation reports obtained under applicable laws, and reasons for non-filing of tax returns, if asked,” Ashish Mehta, partner at the law firm Khaitan & Company, was quoted as saying in the report.

Usually, NRIs with no income from India do not file income tax returns. However, those with ownership of demat shares are now on the radar of the tax department, as a permanent account number is required to open a demat account.

Some NRIs have been asked the reason for not filing income tax returns due to this.