Navigating high-value transactions in India: Tips for compliant tax filing

The Income Tax Department in India monitors high-value cash transactions above a specific limit, and failing to disclose such transactions while filing Income Tax Returns (ITR) can lead to notices from the authorities. These transactions include bank deposits, mutual fund investments, property-related transactions, and share trading. It is important to notify the I-T department if such transactions surpass the threshold limit to avoid getting a notice.

However, besides high-value transactions, there are other common mistakes that taxpayers make while filing ITR, leading to rejection or inviting an income tax notice. In order to access the records of individuals regarding high-value transactions, the IT department has entered into agreements with certain government agencies and financial institutions.

To promote voluntary compliance and avoid scrutiny of taxpayers, the IT department has launched an online campaign that sends e-mail and SMS alerts about the non-disclosure of high-value transactions linked to a permanent account number (PAN).

Entities required to report high-value transactions to the Income Tax Department

1. Banks and financial institutions
2. Companies issuing bonds and debentures
3. Companies purchasing or selling immovable property
4. Registrars or sub-registrars who register immovable property
5. Anyone responsible for operating a stock exchange or commodity exchange
6. Anyone responsible for operating a business where cash receipts exceed Rs. 50,00,000 in a financial year

High-value transactions that are required to be reported

1. Cash deposits/withdrawal of Rs. 10 lakh or more in a savings account
2. Cash deposits/withdrawal of Rs. 50 lakh or more in a current account
3. Cash Payment for purchase of DD or prepaid RBI instruments
4. Credit card payments of Rs. 10 lakh or more in a financial year
5. Purchase or sale of immovable property valued at Rs. 30 lakh or more
6. Purchase of shares or mutual funds of Rs. 10 lakh or more in a financial year
7. Purchase of bonds or debentures of Rs. 10 lakh or more in a financial year
8. Purchase/Sales of foreign currency including traveller's cheques, forex cards, or use your debit or credit card to make a transaction exceeding Rs. 10 lakh or more
9. Purchase or sale of vehicles, jewelry, or other valuable assets of Rs. 10 lakh or more

It is important to note that failure to report high-value transactions can result in penalties or fines.

Monitoring High-Value Transactions: How to Check Your Form 26AS for Investment and Expense Classification

You can view your Form 26AS to check if any of your investments or expenses have been classified as a high-value transaction under the AIR section. The details of such transactions can be found in PART-E of your Form 26AS. By reviewing this information, you can get a better understanding of any significant financial activities you have undertaken during the relevant period.

Tracing High-Value Transactions: Measures Taken by the Income Tax Department

The Income Tax department has taken several measures to trace high-value transactions, which are important from a tax perspective. Here are some of them:

1. Upgraded Form 26AS

The Department has upgraded Form 26AS to include Specified Financial Transactions (SFT). Specified institutions, such as banks, post offices, and stock exchanges, are required to report transactions exceeding the specified threshold to the income tax department. These transactions are reflected in the Annual Information Statement (AIS) portal, which taxpayers can view and use to voluntarily disclose information.

2. Applicability of TDS on cash withdrawal

To trace high-value transactions, the government has proposed that banks must deduct TDS : 

• 2% on cash withdrawals more than Rs 1 crore during the financial year.
• If the person has not filed Income Tax Returns (ITR) for the last three financial years, then TDS at 2% shall be deducted for cash withdrawals exceeding Rs 20 lakh, and for cash withdrawals exceeding Rs 1 crore, TDS will be deducted at 5%.

3. Mandatory filing of returns

Individuals are required to file ITR if their income exceeds Rs 2,50,000. However, from 1st April 2019, ITR filing is mandatory if the individual has entered into certain specified high-value transactions, even if their income is less than Rs 2,50,000. For example, deposits in one or more current accounts maintained with a bank or co-operative bank are more than Rs 1 crore, foreign travel expenditure is in excess of Rs 2 lakh, or electricity bill expenditure is in excess of Rs. 1 lakh during the year.

By implementing these measures, the Income Tax department can track high-value transactions and ensure that taxpayers are complying with tax laws.

How to Respond to an e-Campaign Notice

• Log in to income tax e-filing account.
• Then, click on ‘Pending Actions’> Compliance Portal > ‘e-Campaign (AY 2021-22 Onwards)’.
• Choose the relevant e-campaign. Once redirected, select the specific e-campaign and click on ‘provide feedback in AIS’. If you have no active e-campaigns or e-verifications, you'll see "No Compliance Record has been generated for you". 
• Under the e-Campaign list, select the information category marked with 'e'.
• Choose the relevant transaction marked as 'Expected'.
• Submit your response by selecting the options like:

1. Information is correct
2. Information is not fully correct
3. Income is not taxable
4. Information relates to other PAN/year
5. Information is duplicate/included in other displayed information
6. Information is denied

• Categories where response is expected include Preliminary Response and Feedback on Information on AIS.

The author is a Chartered Accountant with 2 decades of experience into Accounting, Taxation, Auditing, Risk & Compliance, Credit Controls, Due diligence. Currently, the author is the founder and managing partner at RRL Global services.