‘High Value Transactions’ traced under Income Tax

Introduction

Transactions, which are occurring in high denominations, are high value transaction. Income tax department has associated itself with various related departments such as banks from where detail regarding High Value Transaction is obtained. Such Departments provide financial information & detail of such persons who spends high amount on respective transactions. It has been made compulsory by the government to report PAN by person who is engaged in high value transactions.

Income tax Department compares such data of High Value transaction with Income tax return filed by respective persons. Accordingly, it gets to know about those persons who are engaged in such transactions but not paying taxes properly.

Topics Covered –

What are High Value Transactions?

Though, there is no specific definition of ‘High Value Transactions’. In India, only a small segment of people pay taxes. Therefore, gradually Income tax department has associated itself with various departments. It receives information like cash deposit / withdrawal from saving / current bank account, Sale / Purchase of Immovable Properties, Foreign Currencies, Shares, Debentures etc. from such departments.

A threshold limit is prescribed for each ‘High Value Transactions’. Major Transactions classified as ‘High Value Transaction, which are closely monitored by Income Tax Department are discussed as under.

Cash Transactions

Aggregate Deposit of Cash –

When aggregate of the cash for Rs. 10 lakh or more is deposited in Saving Bank Account of an Individual. In that case Bank is required to inform about such transaction to Income Tax Department.

For Example – Mr. A has 2 bank accounts in SBI. He deposits cash of Rs. 4 lakh in one Account and Rs. 8 lakh in another account. Aggregate deposit is Rs 12 lakh, which, exceed the threshold limit. Thus, SBI is required to report the same to Income Tax Department.

In case of Current account, if a person deposits / withdraws cash of Rs. 50 Lakh or more in a year. In that case Bank is required to inform about such transaction to Income Tax Department.

Cash Purchase of Pay Orders or Bank Drafts –

If a person Purchases Demand Draft (DD) or Purchase Orders (POs) or Banker’s Cheque in Cash for Rs 10 lakh or more in a year. In that case bank is required to report the same to Income Tax Department.

Aggregate Fixed Deposits (FDs) –

If a person makes payment in cash for Fixed Deposits of Rs. 10 lakh or more in a year. In that case also bank is required to report the same to Income Tax Department.

Purchase of instruments issued by RBI –

If a person Purchases instruments issued by RBI such as, RBI bonds, etc in cash for Rs. 10 lakh or more in a year. In that case, it is considered as ‘High Value Transaction’ & bank is required to report to Income Tax Department.

Expenditure in Foreign Currency-

Buying or Spending Foreign Currency of Rs. 10 lakh or more in a year through debit card, credit card or traveler’s cheque is also reported in Income tax Department.

Credit Card Transaction

Credit Card payment –

When a person makes payment of Credit Card in an aggregate of Rs. 10 lakh or more in a year. In such case credit card issuing institution is required to report the transaction to Income tax Department.

Credit Card Bill –

When bill of Credit Card Bill is paid by a person in cash for an amount of Rs. 1 lakh or more, in a year. In such case credit card issuing institution is required to report the transaction to Income tax Department

Immovable Property

Sale or Purchase of immovable property –

When a person buys or sells any Immovable property having circle rate of Rs. 30 lakh or above, then such transaction is considered to be ‘High Value Transaction’. Registrars or Sub Registrar, reports it to the Income tax Department. The actual Sale / Purchase price of Immovable property is irrelevant.

For Example – If land having circle rate of Rs. 40 lakh is sold for Rs. 25 lakh, then also such transaction is required to be report to Income tax Department.

Investments

Mutual fund investment –

Purchase of Mutual Funds amounting to Rs. 10 lakh or more in a year are considered as ‘High value Transactions’.

Purchase of Bonds or Debentures –

Purchase of Bonds or Debentures amounting to Rs. 10 lakh or more in a year are considered to be ‘High value Transactions’.

Purchase of Shares –

Purchase of Shares of a company through right issue or public offer of Rs. 10 lakh or more in a year, are also considered to be ‘High value Transactions’. The same is required to be reported in Income tax Department.

Buy Back of Shares –

Buy Back of Shares in a year amounting to Rs. 10 lakh or more in a year is considered as ‘High value Transactions’.

Major parties who report ‘High value Transactions’

Banks.
Mutual Fund Companies.
Sub-Registrar Offices.
Companies Issuing Shares.
Companies Issuing Bonds or Debentures.

How do third parties report ‘High Value Transactions’ to Income tax Department?

In order to trace ‘High value Transactions’, a statement of financial Transactions called Annual Information Return (AIR) has been established by the Income Tax Department. Income tax Department collects information on suspected ‘High value Transactions’ during a year in AIR.

It is obligatory for all that all the ‘Specified Persons’ i.e. third parties to furnish an AIR in respect of specified financial transactions recorded by them during the Financial Year.

All such third party establishments have PAN details of assessee engaged in such transactions. They quote PAN details of all the high value financial transactions recorded by them in AIR and submit it to the Income tax Department.

How IT department gets to know about the High Value Transactions?

Income tax Department receives information from ‘Specified Persons’ i.e. third parties who reports ‘High Value Transactions’. Such parties provide detail of such persons having High Value Financial Transactions since 2016. Entities like Banks, Financial Institutions etc. are responsible to report such ‘High value Transactions’ to the Income tax Department.

Recently in Budget of 2020 – 21, the government has revised the format of Form 26AS. Now all such transactions named as ‘Statement of Financial Transaction’ (SFT) would reflect in Form 26AS of each person.

So now, Form 26AS is a simple way of tracking high value transactions. Part E of Form 26AS shows details of ‘High value Transactions’ in the form of Annual Information Return (AIR).

What is Annual Information Return (AIR)?

As per the provisions of Section 285BA of the Income tax Act, 1961, Annual Information Return (AIR) of ‘High value Financial Transactions’ is required to be furnished by ‘Specified Persons’ in respect of ‘Specified Transactions’ recorded by them during the financial year.

What is Form 26AS?

It is an annual tax statement representing details of all the taxes being deducted by any deductor. The revised Form 26AS also reflects information related to ‘specified financial transactions’. However, the transactions will be shown only if they exceed the specified threshold limit in a financial year.

For example- If an Assessee deposits Cash in Current Account, Rs 50 lakh or more in a financial year, then such transactions will be shown in Form 26AS.

Click here to access your form 26AS

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