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The big-ticket transactions that can bring you under the radar of the I-T dept


To widen the tax net, the income tax department is using analytics to scrutinize data to find out people who haven’t filed income tax returns (ITR) or under-reported income despite doing a high-value transaction.

There is no specific definition of high-value transactions. Various entities report transactions above a threshold done by a taxpayer, which the tax department compares with the ITR filed.

Let’s understand what these high-value transactions are and how the income tax department gets information about them.

Statement of Financial Transactions (SFT): “SFT is a report filed by ‘specified persons’ under Section 285BA, which records transactions exceeding the threshold limit, including investments and expenditures done by taxpayers in a financial year,” said Naveen Wadhwa, deputy general manager, Taxmann, a tax and accounting firm.

These specified entities, including banks, mutual funds, institutions issuing bonds and registrars or sub-registrars, have to file the SFT containing details of high-value transactions.

The list of high-value transactions for which SFTs have to be filed is specified in Rule 114E of the Income-tax Act, 1962.There are around 16 such transactions.

For instance, a bank has to file an SFT when the aggregate cash deposits of all the savings bank accounts of a client exceed 10 lakh in a year. Registrars have to file SFT for every individual involved in any transaction of an immovable property where the deal value exceeds 30 lakh. Similarly, if you have bought financial instruments such as mutual funds, bonds and shares worth 10 lakh or more, it will be reported to the tax department by the issuer.

Moreover, if you have purchased goods and services and have done a payment of 2 lakh or more in cash, then the seller will have to report it in the SFT, if it is liable for audit under Section 44AB. Taxpayers with sales exceeding 1 crore ( 2 crore under Section 44AD) or receipts from a profession exceeding 50 lakh are required to file ITR with an audit report.

TCS and TDS statements: The tax department also gets information from tax deducted at source (TDS) and tax collected at source (TCS) reports. TDS is deducted when a taxpayer receives salary, interest income or dividend. In Budget 2020, TDS at the rate of 10% was introduced on dividend payments by mutual funds in case the amount is more than 5,000.

TCS is collected by the seller on payments for purchases. For example, if you buy a car priced above 10 lakh, the seller will collect TCS at the rate of 1%. The seller will report this transaction at the time of filing of TCS return.

From October 2020, more transactions will be brought under the ambit of TCS. For example, if you buy an overseas tour plan, the operator will deduct TCS at 5%. Authorized foreign exchange dealers receiving an amount of 7 lakh or more in a year for remittance out of India under the Liberalized Remittance Scheme (LRS) shall collect TCS at 5% from the buyer.

“If a person files a return, and the income is not in line with any of the transactions, the tax department can send a notice,” said Sudhir Kaushik, CEO, Taxspanner.com, an ITR filing portal.

The idea of capturing such transactions is to assess the source of income and to check if it is reflected in ITR or not.

The above list is not exhaustive, as there are other ways in which the tax department can track transactions. There are many transactions such as payment of 50,000 to a hotel or restaurant and a deposit of over 50,000 in a bank where you need to quote your PAN.

“A seller has to keep the record of sales above 2 lakh against which PAN needs to be quoted. If the tax department wants, it can reach out to the PAN cardholder and ask the source of income,” said Wadhwa. It is advisable to keep these transactions in mind while filing your ITR.

However, the chances of missing out high-value transactions while filing ITR will be less as some of these will be reported in the new Form 26AS of taxpayers.

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