How does the income tax department get information about High Value transactions? Archives

What are High Value Transactions and How Income Tax Department get Information?

What are High Value transactions?

The transactions done in the high denomination are known as high value transactions. There is no definition of High Value Transaction and also it does not have to be assumed on the basis of turnover or net worth, however, threshold limit has been prescribed for the High Value Transaction.

Following are the list of high value transactions:-

Aggregate cash deposit for Rs 10 lakh or more in saving bank account. If you have two saving bank account and the total deposit exceeds Rs 10 lakh in a year, the Bank is required to report this to Income Tax department.
Purchases of bank drafts, pay orders, purchase order’s or bankers cheque in cash for Rs 10 lakh or more in a year.
Cash payment made for Fixed Deposits amounting Rs 10 lakh or more in a year. However, these fixed time deposits will not include deposits made through renewal of other fixed deposit.
Purchase of any pre-paid instruments issued by RBI of Rs 10 lakh or more in a year.
Cash deposit or withdrawal amounting Rs. 50 Lakh or more in one or more current accounts of a person in a year
Cash received for amount exceeding Rs. 2 Lakh for the sale of goods or rendering of services.
Expenditure in foreign currency via debit card, credit card or traveler’s cheque for the amount Rs.10 Lakh or above in a year.
Payment by credit card amounting Rs.10 Lakh or above in a year
Credit card bill paid in cash for Rs 1 lakh or more.
Purchase or sale of immovable property having guidance value of Rs. 30 Lakh or above. The actual price of sale or purchase is irrelevant
Mutual Fund Investment in a year of Rs 10 lakh or more.
Purchase of bonds or debentures for Rs 10 lakh or more in a year.
Purchase of shares of company through the public offer or right issue for Rs 10 lakh or more.
Share buy-back from a person amounting Rs. 10 lakhs or more.

Who is responsible for reporting high value transactions?

The following third parties are responsible for reporting high value transactions mention above:-

Banks – Private, public and co-operative banks
Post Master General of Post office
Non-Banking Financial companies
Broking companies issuing shares, debenture, and mutual funds
Credit Card Companies

All these third parties need to file Form 61A also called as Annual Information Return. This document contains information about transaction including a name of the person and PAN card number.

How does the income tax department get information about High Value transactions?

Using data analytics, the tax department has processed the data received from various sources such as a statement of financial transactions (SFT) filed by various agencies such as banks, mutual funds etc, tax deduction at source (TDS), tax collection at source (TCS), foreign remittances (Form 15CC) statements etc to gather information about High Value transactions.

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Statement of Financial Transactions (SFT):

“SFT is a report filed by ‘specified persons’ under Section 285BA, which records transactions exceeding the threshold limit, including investments and expenditures done by taxpayers in a financial year.

These specified entities, including banks, mutual funds, institutions issuing bonds and registrars or sub-registrars, have to file the SFT containing details of high-value transactions. Financial transaction specifically required to be reported under Section 285BA are as follows:-

Transaction of purchase, sale/ exchange of goods or property or right or interest in a property; or
transaction for rendering any service; or
transaction under a works contract; or
transaction by way of an investment made or an expenditure incurred; or
transaction for taking or accepting any loan or deposit

TCS and TDS statements:-

The tax department also gets information from tax deducted at source (TDS) and tax collected at source (TCS) reports. TDS is deducted when a taxpayer receives salary, interest income or dividend. TCS is collected by the seller on payments for purchases.

For example, if you buy a car priced above Rs 10 lakh, the seller will collect TCS at the rate of 1%. The seller will report this transaction at the time of filing of TCS return. From October 2020, the following transactions will be brought under the ambit of TCS.

Remittance out of India under Liberalised Remittance Scheme (LRS) of RBI
TCS on selling of overseas tour package
Sale of goods

Form 26AS

Form 26AS is an annual summary tax statement. The Form reflects the details of incomes, tax payments, refunds and tax deducted or collected (TDS or TCS).

The income tax department is streamlining taxpayer information, reporting of income and facilitating faceless tax assessments. With this view, the annual Form 26AS will now carry information about specified high-value transactions. The new Form 26AS will contain information about below high-value transactions:

Cash deposits and withdrawals from savings accounts
Purchase and sale of immovable property
Time deposit or fixed deposits
Payments for credit cards
Purchase of shares, debentures and other transactions in securities
Foreign currency remittances
Buy-back of shares
Cash payment for goods and services

Form 26AS will include information about the high-value transactions which are reported by various organisations such as banks, post offices, authorised dealers, companies amongst others. The Form will also display transaction-specific information for each high-value transactions reported:

Name of the organisation filing the information
Date and the type of transaction
Parties to a transaction, whether singly or jointly undertaken
Amount of the transaction and remarks if any

MOU’s signed by Income Tax Department

Income tax Department has signed MoUs with various departments as follows-

Memorandum of Understanding (MoU) was signed on 21^st July 2020 for exchange of data between Department of Direct tax and Department of Indirect tax.
MoU was signed on 20^th July 2020 for sharing of information between Central Board of Direct Taxes (CBDT) and Ministry of Micro, Small and Medium Enterprises.
MoU was signed on 8^th July 2020 between CBDT and Securities and Exchange Board of India (SEBI) for data exchange.

The MoU will facilitate seamless sharing of certain Income-tax related information for the Income Tax Department, which will aid the Income Tax Department is their assessment proceedings.

E-Campaign to Voluntary File Returns

Department started an e-Campaign on voluntary compliance of Income Tax for the convenience of the taxpayers from the 20^th of July, 2020.

The 11 days campaign ending on 31st July, 2020 focused on the assessees/taxpayers who were either non-filers or have discrepancies/ deficiency in their returns for the FY 2018-19. Information received from this e-campaign will aid the Department to uncover High Value Transactions.

Mandatory filing of ITR

Till FY 2019-20, a person (other than company or firm) was required to file return if income exceeds Rs 2.5 lakhs. In Budget 2020, Finance Minister Smt. Nirmala Sitaraman announced that from 1^stApril 2020 filing of Income-tax return is mandatory even if your income does not exceed Rs 2.5 lakhs and you have entered into High Value transactions. Accurate filing of ITR will provide the department with necessary information of the high value transactions.

Revenue authorities obtain information about income of assesses from different sources like banks, employers, tenants, mutual exchange of information between countries etc. If you have not shown some income or your high value transactions in your ITR, then you may get a notice under section 139(9) or 143(1) from the income tax department if they detect the non-disclosure. If you do not respond to the notices, then you may have to pay a huge penalty as per income tax norms.

Therefore it is essential to file one’s return on time with complete information of the high value transactions and pay the tax due, if any, within the specified period of time to avoid getting notices from the Income Tax Department.

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