The Income Tax Department has tightened its grip on offshore companies and NRIs, seeking detailed explanations for their investments in unlisted shares.
Investors have been asked to disclose the source of funds and submit valuation reports to justify the prices at which they acquired shares.
The move comes after private companies were mandated to dematerialise their shares by June 2025, giving tax authorities access to clearer transaction data.
Officials are closely examining deals between 2019-20 and 2022-23. Transactions made at prices below fair value could attract tax action under direct tax laws and FEMA.
At the same time, unusually high valuations are raising red flags over possible money laundering and fund round-tripping.
Industry experts say notices have been sent to several non-resident investors, asking them to explain their transactions with proper documentation, including fund sources, valuation methods, and even reasons for not filing income tax returns.
Many NRIs, especially those without income in India, earlier skipped filing returns. However, with demat accounts now mandatory — requiring PAN details — such investors are coming under the tax radar.
Under current rules, tax officials first seek explanations before reopening cases, giving investors a chance to respond before further action is taken.
Authorities are also probing whether certain investments were used as channels to bring back undisclosed money through inflated valuations or questionable trade practices.
The focus is particularly sharp on investments routed through jurisdictions like the UAE and tax havens, where valuations often appear significantly higher than the actual market value.
With dematerialisation making tracking easier, the department is now digging deeper into ownership structures, financial capacity of investors, and even board-level decisions behind such investments.
Experts say while identity and valuation details can be provided, proving the original source of funds — especially in global investment structures — remains a major challenge for many investors.
Overall, the crackdown signals stricter scrutiny on cross-border investments, with tax authorities aiming to plug loopholes and ensure transparency.
