​The Income Tax Department has recently initiated a significant investigation into payment gateway companies, invoking the Benami Transactions (Prohibition) Act to uncover potential illicit financial activities. This move aims to identify instances where shell companies may be using payment gateways to transfer funds anonymously, thereby concealing the true beneficiaries and evading taxes.​

Data Requests to Payment Gateways: At least two payment gateway firms have been issued notices under Section 23 of the Benami Transactions (Prohibition) Act, 1988. These notices demand detailed information on United Payment Interface (UPI) transactions, including the identities of individuals linked to specific UPI IDs, transaction dates, amounts, and associated bank account numbers.

Suspected Use of Shell Companies: Authorities suspect that certain shell companies are posing as merchants on these platforms to move illicit funds. These entities might be holding money on behalf of others or facilitating bogus expenses to help fund remitters evade taxes.

KYC Compliance Scrutiny: Given that payment gateways are regulated by the Reserve Bank of India (RBI) and are required to perform Know Your Customer (KYC) checks before onboarding merchants, the investigation also focuses on potential lapses in KYC compliance.

Legal Implications: Under the Benami law, a transaction is considered ‘benami’ if the property or asset is held by one person, but the payment is made by another, effectively concealing the true owner. Violations can lead to severe penalties, including the attachment of properties and rigorous imprisonment for up to seven years.

This investigation underscores the government’s commitment to combating tax evasion and ensuring transparency in financial transactions. Payment gateway companies are expected to fully cooperate with the authorities to facilitate the probe.

Sources