Is it considered legal or considered tax evasion?

Taxation
1

Hello, I have 2 situations I need help with.

A. I work as a remote freelancer for different foreign clients and have the option to receive payments in any bank account in India.

  1. Can I receive some payments in my family member’s bank account to avoid the 50 Lakh 44ADA limit? Is it legal?

  2. What if I form HUF or partnership and receive payments in that account? Is it legal?

B. I also trade in the stock market. Let’s assume I will have a very successful FY 21-22 in the stock market.

  1. Can I create a bank/broker account on behalf of my family members (sibling, mother) and trade using it by transferring money from my bank account to there and from there to the broker’s account? This way I will get lower tax slabs since they earn less very little money. Is it legal?
2

There is no law stating your family member can’t do said business or that they cannot have a demat account. That’s how it should be looked at.

BTW please ensure that your nature of income falls within the purview of 44ADA. Not all freelancers can file under 44ADA.

3

Hi @StupidSoldier,

Here are the answers to your queries.

A1. Ideally, it is always suggested to report the income in ITR of the service provider. If you receive payments in a family member’s bank account. you need to report the payments received in your family member’s Income tax return and pay taxes on it. However, if any scrutiny is conducted by the income tax department you will have to prove the services were provided by the person in whose return the income is reported.

A2. You can form a partnership and receive professional fees in that account but the intention of forming the partnership firm should be providing the same professional services. Also, partners should be qualified enough to provide those services.

B. If you transfer money to relatives it will be considered as a gift and it is exempt from taxation. You can trade using that money. In this case, also you need to report the profits as income in your family member’s Income tax return and pay taxes on it. However, if any scrutiny is conducted by the income tax department you will have to prove the sources of funds for the person in whose return the income is reported.

Hope this helps!

4

I suppose it would be rather unusual for a tax officer to question source if the money has come into the bank account (not cash) for which tax is also paid, especially for moderate amounts.