High Value Transactions Tracked by Income Tax Department
Tax & GST

High Value Transactions Tracked by Income Tax Department

Introduction

The Income Tax Department (ITD) is always looking to track down high value transactions entered into by the assessees to determine any possible tax evasion. Assessees often attempt to hide high value transactions or enter into cash transactions to evade tax. The Income Tax Department has from time to time implemented a number of measures to effectively monitor transactions of high value entered into by the assessees.

After tracking down the high value transactions, the ITD checks whether such transaction has been disclosed in the return, if any, filed by the assessee. Where return is filed, the amount and circumstances of the transaction is corroborated with the information provided. For example, where the ITD tracks a very high value expenditure of an assessee whose Income Tax return shows very nominal income, it raises a red flag and the ITD would further investigate into the sources of such huge amount of money spent.

Major Transactions Tracked by ITD

The ITD has implemented mechanism to track down every high value transaction entered by the assessee related to the following:-

  • Purchase and sale of immovable property
  • Huge cash deposits in bank
  • High value cash withdrawals from bank
  • High value term deposits
  • High value deposits in current account
  • Income earned by professionals
  • Income earned by works contractors
  • Credit card bill payments
  • Foreign currency transactions
  • Investments in shares, debentures, bonds
  • Investments in mutual funds.

Recent changes brought in Form 26AS

The erstwhile Form 26AS (Annual Tax Statement) was replaced by the new Form 26AS, also known as Annual Information Statement. Part E of the new Form 26AS will provide information relating to Specified Financial Transactions (SFT). SFT refers to the high value transactions. Section 285BA(3) provides the meaning of Specified Financial Transactions as follows:

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

The ITD will obtain information about SFTs from various sources and provide the same in Form 26AS in the following format –

Sl No.Type of TransactionName of AIR FilerTransaction Date Single/Joint Party TransactionNumber of PartiesAmountModeRemarks

Steps taken to deal with high value Transactions:

The Government has brought in amendments in the Income Tax Act and the Income Tax Rules from time to time to enforce disclosure of high value transactions by assessees. The most significant measure was to introduce the system of Statement of Specified Financial Transaction which was brought in with effect from 1 st April, 2005 and has been repeatedly amended thereafter. Other measures taken include specific provisions made with respect to filing of returns, TDS, TCS etc.

This discussion is discussed in 2 parts: –
A. Statement of Specified Financial Transactions
B. Other measures

Statement of specified Financial Transactions

Statement of Specified Financial Transaction is to be filed in Form 61A. It is a statement to be filed by certain persons such as banks, post offices, etc. to give information about high value transactions entered into by their customers.

Legal Provision:

Section 285BA(1) provides that ‘Any person, being—

  • an assessee
  • the prescribed person in the case of an office of Government
  • a local authority or other public body or association
  • the Registrar or Sub-Registrar appointed under section 6 of the Registration Act, 1908 (16 of 1908)
  • the registering authority empowered to register motor vehicles under Chapter IV of the Motor Vehicles Act, 1988 (59 of 1988)
  • the Post Master General as referred to in clause (j) of section 2 of the Indian Post Office Act, 1898 (6 of 1898)
  • the Collector referred to in clause (g) of section 3 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (30 of 2013)
  • the recognized stock exchange referred to in clause (f) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956)
  • an officer of the Reserve Bank of India, constituted under section 3 of the Reserve Bank of India Act, 1934 (2 of 1934)
  • a depository referred to in clause (e) of sub-section (1) of section 2 of the Depositories Act, 1996 (22 of 1996)
  • a prescribed reporting financial institution
  • a person, other than those referred to in clauses (a) to (k), as may be prescribed,

who is responsible for registering, or, maintaining books of account or other document containing a record of any specified financial transaction or any reportable account as may be prescribed, under any law for the time being in force, shall furnish a statement in respect of such specified financial transaction or such reportable account which is registered or recorded or maintained by him and information relating to which is relevant and required for the purposes of this Act, to the income-tax authority or such other authority or agency as may be prescribed’

Rule 114E of the Income Tax Rules prescribe the nature and value of the transactions to be reported and the class of persons who need to furnish Form 61A. It also provides the details regarding manner of furnishing the statement and the time limit for the same. The details relating to the Form 61A is discussed below.

Transactions to be reported and persons required to report

Class of Reporting PersonsNature and value of transactions to be reported.
Banking Company / Cooperative Bank1. Payments made in cash for purchase of bank drafts or pay orders or banker’s cheque of Rs. 10 lakhs or more in aggregate during a financial year
2. Payments made in cash aggregating Rs. 10 lakhs or more during the financial year for the purchase of pre-paid instruments issued by RBI
3. Cash Deposits or cash withdrawals aggregating to Rs. 50 lakhs or more in a financial year in or from one or more current accounts of a person
4. Cash Deposits aggregating to Rs. 10 lakhs or more in a financial year in one or more savings account of a person
5. Term Deposits aggregating to Rs. 10 lakhs in a financial year;
Post Office1. Cash Deposits aggregating to Rs. 10 lakhs or more in a financial year in one or more savings account of a person.
2. Term Deposits aggregating to Rs. 10 lakhs in a financial year.
Nidhi Company / Non-Banking Finance Company (NBFC)Term Deposits aggregating to Rs. 10 lakhs in a financial year.
Bank / Credit Card CompaniesPayments made by any person of an amount aggregating to:
a. Rs. 1 Lakh or more in cash
b. Rs. 10 Lakh or more by any other mode, against bills raised in respect of one or more credit cards issued to that person in a financial year.
Company issuing bonds or debenturesReceipt of Rs. 10 lakhs or more (in aggregate) for acquiring bonds / debentures in a financial year
Company issuing sharesReceipt of Rs. 10 lakhs or more (in aggregate) for acquiring shares in a financial year
Listed CompanyBuy back of shares from any person for Rs. 10 lakhs or more in a financial year.
Mutual FundReceipt of Rs. 10 lakhs or more (in aggregate) for acquiring units in a financial year.
Foreign Exchange BrokerReceipt from any person for sale of foreign currency including of Rs. 10 lakhs or more (in aggregate) during a financial year.
Registrar / Sub-registrar in relation to registration of immovable propertyPurchase or sale of immovable property for an amount of Rs. 30 lakhs or more.
Any person liable for Tax Audit u/s 44AB of the Income Tax ActReceipt of cash payments exceeding Rs. 2 Lakhs, for sale of goods or services or any nature.

Filing of Form 61A

Form 61A must be filed by every person on whom the form is applicable by 31st May, immediately following the financial year in which the transaction is registered or recorded. Where a person who was required to file Form 61A has failed to do so, the prescribed Income Tax Authority may serve upon such person, a notice requiring him to furnish such statement within a period of 30 days from the date of service of such notice and he is required to comply with the same.

The form can be submitted online through the e-filing portal logging in through the ITDREIN. If a person does not have a ITDREIN, he may generate the same by logging into the portal with his PAN. The option to manage ITDREIN is available under the ‘My Account’ tab. Once the ITDREIN is successfully generated and activated, it can be used to log in to the portal for filing Form 61A.

Penalty for failure to furnish Form 61A or filing inaccurate particulars

Section 271FA of the Income Tax Act provides that where a person, who is required to furnish a statement of specified financial transactions in Form 61A, fails to furnish the same within time prescribed, as discussed above, a penalty may be levied on such person amounting to Rs. 500 per day for every day during which such failure continues.

Where a notice has been served to a person requiring him to file Form 61A and he fails to file the same within the prescribed time mentioned in such notice, a penalty amounting to Rs. 1,000 per day for every day during which the failure continues, shall be levied.

Section 271FAA provides that if a person furnishes inaccurate particulars in Form 61A and –

  • The inaccuracy is either deliberate or due to failure in compliance with the due diligence requirement.
  • The person knows the inaccuracy at the time of furnishing the Form 61A but does not inform the prescribed Income Tax Authority.
  • The person discovers the inaccuracy after the Form 61A is furnished and fails to inform and correct the information within a period of 10 days.

Then the prescribed Income Tax Authority may direct such person to pay by way of penalty, a sum of Rs. 50,000.

Other Measures

Apart from introduction of Statement for Specified Financial Transactions, other measures  taken by the government are discussed below:-

MOUs with other departments

The Central Board of Direct Taxes (CBDT), enters into Memorandum of Understanding (MoUs) with various departments from time to time in facilitate sharing of data.

On 8th July, 2020 the Securities Exchange Board of India (SEBI) and the CBDT entered into a MoU for data sharing on automatic and regular basis. This move was aimed at enhancing the Income Tax Department’s scrutiny of suspicious stock market transactions and possible tax evasions.

On 20th July, 2020 the Central Board of Direct Taxes (CBDT) signed a Memorandum of Understanding (MoU) with the Ministry of MSME to facilitate seamless sharing of certain ITR related information by the CBDT with the MoMSME and enable it to check and classify enterprises into micro, small and medium categories.

On 21st July, 2020, the CBDT signed a MoU with Central Board of Indirect Taxes & Customs (CBIC) for data exchange between the two organizations. This MoU is to facilitate sharing of data and information on automatic, regular, request and spontaneous basis. A Data Exchange Steering Group has also been constituted to meet periodical review of data exchange status and to improve effectiveness of data sharing mechanism.

Campaign for voluntary filing of return

The CBDT launched an e-campaign for voluntary filing of return for the financial year 2018-19 (Assessment Year 2019-20) and the ITD sent out text messages and e-mails to selected assessees asking them to file ITR with the aim to encourage non-filers and assessees who have discrepancies to file/ revise their return and also the due date for filing/revising return was extended to 30th September, 2020 as part of the Covid-19 relaxations..

Tax Deducted at Source (TDS) on cash withdrawal

In view of tracking high value transactions, section 194N of the Income Tax Act (as substituted by the Finance Act, 2020), effective from 1st July, 2020 provides that –

  • Every bank / cooperative bank / post office shall deduct TDS of 2% of the amount withdrawn by the customer, if the amount or the aggregate of amounts as the case may be, in cash exceeds Rs. 1 crore during the financial year.
  • Every bank / cooperative bank / post office shall deduct TDS as follows if the customer has not filed Income Tax Return for all the 3 assessment years relating to the previous years for which the time limit of filing return has expired –
Amount withdrawn during the FYTDS (%)
Rs. 20 lakhs up to Rs. 1 crore.2%
More than Rs. 1 crore5%

Where TDS is deducted, the information relating to the same shall be provided to the government as soon as the TDS return is filed by the deductor.

This section is not applicable on any payments made to –

  • The Government
  • Bank / Cooperative Bank / Post Office
  • Any business correspondent or ATM operator or a bank / cooperative bank.

Restriction of Cash Transactions

Various provisions of the Income Tax Act, restricts cash transactions. Some of the most notable ones are:-

  • Disallowance of cash expenses exceeding Rs. 10,000 (Rs. 35,000 in case of transporters): Section 40A(3) of the Income Tax Act provides that, any cash expense exceeding Rs. 10,000 (Rs. 35,000 in case of transporters) in a single day where such expense are of revenue nature and incurred for the purpose of business or profession shall be disallowed. In other words, such expense cannot be claimed in the Profit & Loss Account while filing the return of Income. Section 40A(3A) provides that where the cash payment in excess of Rs. 10,000 / Rs. 35,000 as the case may be, is made in the subsequent year in respect of a liability booked or a provision created for an expense, during the financial year, then such payment shall be added to the income of the subsequent year.
  • Disallowance of depreciation where assets are purchased in cash exceeding Rs. 10,000: Section 43(1) of the Act provides that where an asset is purchased by the payment exceeding Rs. 10,000 (Rs. 35,000 in case of transporters) in cash in a single day, such expenditure shall be ignored for the purpose of calculation of depreciation.
  • Prohibition of acceptance of loan exceeding Rs. 20,000 in cash: Section 269SS provides that no person shall take or accept any loan or deposit or any specified sum (except from the Government / Bank / Government company) otherwise than by an account payee cheque or bank draft or other electronic means if the amount is Rs. 20,000 or more. Section 271D provides that if a person contravenes the provisions of section 269SS, he shall be liable to pay a penalty equal to the amount of loan or deposit or specified sum taken or accepted.
  • Prohibition of repayment of loan in cash exceeding Rs. 20,000: Section 269T provides that no person including a banking company shall repay any loan or deposit made with it or any specified advance (except from the Government / Bank / Government company) received otherwise than by an account payee cheque / draft / other electronic means, if such amount is Rs. 20,000 or more. Section 271E provides that if a person contravenes with the provisions of section 269T, he shall be liable to penalty of a sum equal to the amount of loan or deposit or specified sum so repaid.
  • Prohibition of receipt of Rs. 2 lakhs or more in cash: Section 269ST provides that no person shall receive (except from Government / Bank / Post Office etc.) an amount of Rs. 2 lakhs or more in aggregate from a person in a day or in respect of a single transaction / event / occasion, otherwise than by an account payee cheque / draft / other electronic means. Section 271DA provides that if a person receives any amount in contravention to section 269ST, he shall be liable to pay a penalty amounting to a sum equal to the amount of such receipt.

Conclusion

The government and the Income Tax Department are taking strict measures to counter tax evasion and creation and circulation of black money. For this reason, more amendments are expected in the near future in relation to high value transactions.


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