Income Tax Department Is Tracking Your Transactions

The income tax department is actually tracking your every financial transaction. Banks & other Financial Intermediaries are required to report high value transactions to the department through an Annual Information Return (AIR).

Very Soon, Tax Dept. will send SMS on many high-value transactions to you.

Rule 114B of Income Tax Rules prescribe 18 types of financial transactions where quoting of PAN is mandatory.

These include:

1.      All transactions related with sale or purchase of a motor vehicle or other vehicles (not including two-wheelers) as there are people buying Rs75 lakh car and still not paying taxes. Thus such spending will be tracked with level of income declared in their tax return.

2.      Opening a bank account (not including Jan Dhan Account or a basic account),

3.      Making an application for issue of credit or debit card and opening of a Demat account.

The Rs.50, 000 thresholds

4.      Same will be applicable in the case of payment in cash of an amount exceeding Rs.50,000 to a hotel or restaurant against a bill or bills at any one time,

5.      Spending more than Rs 2 lakh on a foreign trip.

6.      Paying electricity bill of more than Rs 1 lakh in a year.

7.      For payment to a Mutual Fund or RBI.

8.      Deposits more than Rs.50, 000 during one day in bank, co-operative bank or post office.

Other Transactions Reporting

9.      A time deposit with any bank or Rs.5 lakh during a year.

10.  Payment in cash for life insurance premium.

11.  For sale-purchase of securities other than shares or unlisted shares for an amount exceeding Rs.1 lakh per transaction.

12.  Sale-purchase of immovable property with amount exceeding Rs.10 lakh or payment of more than Rs.2 lakh for sale-purchase of any other goods.

13.  Cash deposited cash of Rs.10 lakh or more in a year.

14.  Cash deposits or withdrawals of Rs 50 lakh or more in a year in one or more Current Account of the bank.

15.  Purchase or sale of immovable property exceeding Rs. 30 lakh.

16.  Now, TCS (tax collected at source) at the rate of 1 % by the buyer of purchase of property over Rs. 50 lakh.

17.  Cash payment of Rs. 1 lakh towards your credit card or Rs. 10 lakh or more through any other mode during the financial year.

18.  Purchase of shares, debentures and mutual funds of Rs. 10 lakh or more.

19.  If you are earning more than Rs. 50 lakh a year, report your assets and liabilities in ITR.

20.  PAN is mandatory for any purchase of goods and services of more than Rs. 2 lakh & TCS in case of purchase or sale of any goods and services for Rs. 2 lakh and more in cash.

21.  A 1 % luxury tax is levied on purchase of car priced over Rs. 10 lakh.

22.  Deposited Rs 1 crore during a year in a current account & filing Income Tax Return mandatory.

23.  Tracking to TDS on Interest paid by Banks on fixed deposits is more than Rs. 40,000 (Rs.50, 000/- for senior citizens) in a year.

24.  Cash withdrawal of more than Rs.1 crore Banks will deduct TDS 2 %.

25.  High hotel bills, clubs, expenditure on holding a party-Hotel to report to ITO.

Fake bills to save income tax by Employees may land them in trouble, reimbursement of expenses (Travel, Hotel, Restaurant bill for Food, Taxi) and Leave Travel Allowance (LTA) bills such as train and air tickets for domestic travel, HRA claim based on the rent receipt with PAN number of landlord, no rent agreement or any proof of payment actually been done.

Trace the High Value Financial Transactions in 26AS

You can check your Form 26AS under AIR section if any investment or expense has been categorized as a high value transaction. You can find high value financial transaction details under PART-E of your Form 26AS.

Government will to use Aadhaar to track financial transactions

Making Aadhaar and PAN interchangeable for return filing and quoting either for transactions indicates the Government's will to use Aadhaar to track all financial transactions.

We have been seeing increasing use of technology and automated processes by the tax authorities. This Budget proposes passing on the benefit of technology by providing pre-filled return forms that will even include details of capital gains. This will set an expectation that when the compliance level is mature, taxpayers with simpler sources of income such as salaries and bank interest, and in cases where all taxes have been paid through withholding, the tax filing requirement may be done away with.

Project Insight, the big-data analytics project of the I-T department, among other things, aims at matching spending patterns of individuals with their declared income, to detect any tax evasion. Project Insight" would track social networking profiles of people and keep a tab on the expenditure patterns through the photographs and videos uploaded on social media. If you are travelling to a foreign country and posting pictures on social media, or buying a luxury car which is beyond your means as per your returns filed, the I-T Department can use Big Data to analyse them and check the mismatch between your earnings and spending. The process can easily use the complete trail even for the new tax filer.

CA Harshad Shah, [email protected]