Guide to Tax-Compliant Deal Making in India

High-value cash transactions in excess of a certain limit are subject to scrutiny by the Income Tax Department in India, and failure to report such transactions while submitting Income Tax Returns (ITR) might result in notifications from the authorities. Deposits at banks, investments in mutual funds, deals involving real estate, and stock trades all fall under this category. If such transactions exceed the threshold limit, it is crucial to alert the I.T. department.

But, there are other typical mistakes that taxpayers make when reporting ITR that can lead to rejection or invite an income tax notice. They are not limited to high-value transactions. The IT department has made arrangements with several governmental and financial entities to access individuals’ records pertaining to high-value transactions.

In an effort to encourage voluntary compliance and shield taxpayers from unnecessary scrutiny, the IT department has created a web-based campaign that notifies recipients through e-mail and text messages whenever a high-value transaction is made using an individual’s permanent account number (PAN).

The Income Tax Department must be notified of certain high-dollar transactions by the following entities:

  1. Financial institutions and banks
  2. Debenture and bond-issuing corporations
  3. Enterprises dealing with the acquisition or sale of real estate
  4. agents or associates of registrars who record real estate transactions
  5. Whoever manages a stock exchange or commodity exchange
  6. The person in charge of a company that has a yearly cash flow of more than Rs. 50,000,000

Reportable examples of high-value transactions

  • Ten million rupees or more deposited or withdrawn from a savings account
  • Currency transactions more than or equal to fifty thousand rupees entered or withdrawn from a current account
  • Purchase of Demand Drafts or Prepaid RBI Instruments with Cash
  • Ten thousand rupees or more charged to a credit card in a single fiscal year
  • Transactions involving the purchase or sale of real estate totaling Rs. 30 lacks or more
  • The purchase of Rs. 10 lacks or more in shares or mutual funds within a fiscal year
  • Investment of Rs. 10 lacks or more in bonds or debentures within a fiscal year
  • Foreign currency exchange, including the purchase or sale of traveler’s checks, forex cards, or transactions using a debit or credit card totaling Rs. 10 lacks or more
  • Transactions involving more than Rs. 10 lacks, or around $13,000, including the purchase or sale of luxury goods

Note that there may be fines or penalties for failing to record high-value transactions.

How to Verify Your Form 26AS for Investment and Expense Classification While Keeping Tabs on High-Value Transactions

If you want to see if any of your investments or expenses have been flagged as high-value transactions by the AIR, you can do so by reviewing your Form 26AS. Part-E of your Form 26AS contains the information about these exchanges. It is possible to have a deeper knowledge of your major financial activity throughout the time period in question by reading the data provided here.

Methods Used by the Internal Revenue Service to Track High-Value Transactions

The Income Tax division has implemented a number of policies to better track transactions of substantial value. Such examples are as follows:

Form 26A-S (updated)
Form 26AS now includes SFTs, per the Department’s enhancements (SFT). Some businesses, including banks, post offices, and stock exchanges, are obligated to record financial transactions to the tax authority whenever they surpass a certain level. Taxpayers can examine and voluntarily disclose these transactions using the Annual Information Statement (AIS) site.

Cash withdrawals are subject to tax deduction withholding
The government has recommended that banks collect TDS at a rate of 2% on cash withdrawals exceeding Rs 1 crore throughout the financial year. This is to facilitate the tracking of high-value transactions. Withdrawals in excess of Rs. 20 lakh will be subject to TDS at the rate of 2%, and withdrawals in excess of Rs. 1 crore will be subject to TDS at the rate of 5% if the recipient has not filed Income Tax Returns (ITR) for the preceding three fiscal years.

All businesses must submit tax returns
If an individual’s income is beyond Rs 2,50,000, they must submit an ITR. Nevertheless, beginning in 2019, individuals with incomes below Rs 2,50,000 are required to file an ITR if they have engaged in certain high-value transactions. If you spend more than Rs 1 crore on energy bills, overseas travel, or checking accounts at banks or co-ops during the year, or if your deposits in one or more current accounts total more than Rs 1 crore, you may be considered a high earner.

The Income Tax department can monitor taxpayer compliance with the law by keeping tabs on transactions of significant value thanks to these new procedures.

The author is a Tax Professional with 2 decades of experience in Accounting, Taxation, Auditing, Risk & Compliance, Credit Controls, and Due diligence. Currently, the author is the Founder and CEO of Techmin Consulting.

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