High-value transactions refer to significant financial dealings involving large sums of money that are reported by banks, government agencies, and various entities to the Income Tax Department. This information is crucial for tax assessment when individuals file their Income Tax Returns (ITR). The Income Tax Department closely monitors such transactions to ensure compliance and detect potential tax evasion.
Here are examples of high-value transactions reported through Form 61A (Statement of Financial Transactions):
- Cash Deposits or Withdrawals: Cash transactions exceeding Rs. 10 lakh in a fiscal year from a savings account or Rs. 50 lakh from a current account are reported.
- Fixed Deposit Transactions: Depositing over Rs. 10 lakh in cash into a fixed deposit account in a fiscal year is reported.
- Property Transactions: Sales or purchases of immovable property exceeding Rs. 30 lakh in a financial year are reported.
- Investments in Securities: Cash investments exceeding Rs. 10 lakh in a fiscal year in stocks, mutual funds, debentures, and bonds are reported.
- Credit Card Payments: Cash payments exceeding Rs. 1 lakh for credit card bills in a fiscal year are reported.
- Credit Card Debt Repayment: Repayment of credit card debt exceeding Rs. 10 lakh in a fiscal year using methods other than cash is reported.
- Foreign Currency Transactions: Sale of foreign currency amounting to more than Rs. 10 lakh in a fiscal year is reported.
- Other High-Value Expenses: High-value expenses such as business-class air travel, tuition or donations, and purchases of jewelry, white goods, paintings, marble, and electricity consumption exceeding Rs. 1 lakh in a fiscal year are reported.
Individuals engaging in these high-value transactions may come under the scrutiny of the Income Tax Department, leading to notices or inquiries. Staying informed about reporting thresholds and ensuring accurate disclosure in ITR filings is crucial for tax compliance.
How Income Tax Authorities Track High-Value Transactions
They utilize financial data collected from various government agencies and banks. Here are ways they monitor transactions, ensuring tax evasion or avoidance doesn’t go unnoticed.
Annual Information Return (AIR):
Financial institutions submit an AIR annually, detailing transactions exceeding set thresholds. For example, deposits over Rs. 10 lakh in cash, investments exceeding Rs. 2 lakh in mutual funds, or real estate expenditures surpassing Rs. 30 lakh trigger AIR reporting.
Statement of Financial Transactions (SFT):
Similar to AIR, SFT encompasses a broader array of transactions—credit card payments, foreign exchange transactions, stock and bond purchases, insurance policy acquisitions, and gold/silver purchases. Reporting thresholds vary, typically ranging from Rs. 50,000 to Rs. 10 lakh.
Tax Deducted at Source (TDS):
Payers deduct a portion of tax from payments to payees and remit it to the income tax department. For instance, companies deduct tax from employee salaries. Your Form 26AS consolidates TDS details, offering a comprehensive view of your tax credits.
Tax Collected at Source (TCS):
Sellers of goods or services collect tax from customers and remit it to the income tax department. For instance, a car purchase exceeding Rs. 10 lakh incurs a 1% TCS. This information is also reflected in your Form 26AS.
Income Tax Return (ITR):
Filing an annual ITR is mandatory. By cross-referencing ITR data with information from AIR, SFT, TDS, and TCS, the tax department verifies income sources and spending patterns, ensuring accurate reporting.
Understanding these mechanisms sheds light on the meticulous ways the tax department ensures financial transparency and compliance.
Action to Take When Form 26AS Displays SFT Transactions:
Initially, it’s crucial for a taxpayer to confirm the accuracy of SFT transactions reflected in Form 26AS. Following this, it’s essential to report the identified high-value transactions while filing the Income Tax Return (ITR), ensuring precise calculation of the associated tax liability. Any inaccuracies or discrepancies in reporting these transactions might lead to the issuance of an income tax notice.