CBDT Directs Income Tax Department to Monitor High-Value Cash Transactions at Hotels, Hospitals

The Central Board of Direct Taxes (CBDT) has issued a directive to the Income Tax department, emphasizing the need for "non-intrusive" monitoring of rampant cash transactions in sectors such as hotels, luxury brand sales, hospitals, and IVF clinics. This move comes as part of the CBDT's Central Action Plan 2024-25, which aims to curb tax evasion and improve compliance in high-cash industries.

Focus on High-Cash Sectors

• The CBDT has identified specific business sectors where cash transactions over Rs 2 lakh are prevalent. These sectors include hotels, banquet halls, luxury retailers, IVF clinics, hospitals, designer clothing stores, and NRI quota medical college seats.
• Despite legal requirements for reporting such transactions, circumvention is common, with financial institutions failing to report transactions through the Statement of Financial Transaction (SFT).

Need for Non-Intrusive Verification

• The CBDT has stressed the importance of conducting verification exercises in a non-intrusive manner, ensuring compliance without disrupting legitimate business activities.
• The Board has highlighted the need to verify high-value consumption expenditures against taxpayer information, identifying potential areas of tax evasion.

Rise in Arrear Demands

• The CBDT has also expressed concern over the steep rise in arrear demands, which increased from Rs 24.5 lakh crore in April 2023 to Rs 43 lakh crore in April 2024.
• To address this issue, the CBDT has directed the formation of special teams, led by Principal Commissioners, to focus on recovering tax arrears from the top 5,000 cases.

Leveraging Data Analytics

• The CBDT plans to utilize data mining and analytics to identify potential taxpayers, expanding the tax base by targeting non-filers and individuals whose financial transactions do not align with their income tax returns.

Conclusion

As part of its 2024-25 action plan, the CBDT is pushing for stringent but non-intrusive measures to address the issue of unreported cash transactions in key sectors. By leveraging data analytics and forming special recovery teams, the Board aims to improve tax compliance and reduce the growing backlog of arrear demands.