What Are High Value Transactions?
High-value transactions under the Income Tax Act refer to financial transactions that involve large amounts of money. These transactions are closely monitored by the Income Tax Department to ensure tax compliance.
Here are some examples of high-value transactions –
- Cash Deposits and Withdrawals – Deposits or withdrawals of ₹10 lakhs or more in savings bank accounts and ₹50 lakhs or more in current accounts are considered high value transactions. Banks and post offices report these to the tax authorities.
- Investments and Securities – Transactions related to time deposits, debentures, bonds, shares, mutual funds, and buybacks of shares by companies fall under this category. Also, purchasing foreign currency worth ₹10 lakhs or more is considered a high-value transaction.
- Credit Card Payments – If you make credit card payments of ₹10 lakhs or more against bills raised for purchases or expenses, it qualifies as a high value transaction.
- Property Transactions – Purchasing or selling immovable property with a Stamp Duty Value of ₹30 lakhs or more is considered a high-value transaction. The registrar or sub-registrar reports such transactions.
- Cash Received for Goods or Services – If you receive cash payments of ₹2 lakhs or more for the sale of goods or services and are liable for audit under Section 44AB of the Income-tax Act, it falls into this category.
The Income Tax Department receives information about these transactions through reporting authorities such as banks, post offices, and companies. They file a Statement of Financial Transaction (Form 61A) to inform the tax department. The department then verifies whether the taxpayer has filed accurate returns and paid the correct taxes
Which Transactions Are Considered High Value by The Income Tax Department?
The Income Tax Department of India considers several types of transactions as high value and requires them to be reported to ensure compliance with tax regulations. These transactions typically involve significant sums of money and include:
- Cash Deposits:
- Deposits of ₹10 lakh or more in a savings bank account in a financial year.
- Deposits or withdrawals of ₹50 lakh or more in a current account in a financial year.
- Credit Card Payments:
- Payments of ₹1 lakh or more in cash against credit card bills.
- Payments of ₹10 lakh or more by any mode (including cheque, online payment, etc.) against credit card bills in a financial year.
- Investments in Mutual Funds:
- Purchase of units of mutual funds amounting to ₹10 lakh or more in a financial year.
- Purchase of Bonds or Debentures:
- Purchase of bonds or debentures amounting to ₹10 lakh or more in a financial year.
- Purchase of Shares:
- Acquisition of shares (including rights shares) amounting to ₹10 lakh or more in a financial year.
- Sale or Purchase of Immovable Property:
- Sale or purchase of immovable property valued at ₹30 lakh or more.
- Term Deposits:
- One or more fixed deposits (other than renewal) aggregating to ₹10 lakh or more in a financial year.
- Foreign Exchange:
- Expenses of ₹10 lakh or more on foreign travel or purchase of foreign currency in a financial year.
- Purchase of Luxury Items:
- Purchase of jewelry, bullion, or other luxury items amounting to ₹2 lakh or more.
- Cash Receipts:
- Receipts of ₹2 lakh or more for the sale of goods or services in cash.
These high-value transactions are monitored to prevent tax evasion and ensure transparency in financial dealings. Banks, financial institutions, and other entities are required to report these transactions to the Income Tax Department through various reporting mechanisms like Annual Information Return (AIR) or Statement of Financial Transactions (SFT).
What is the Purpose of Reporting High Value Transactions?
The purpose of reporting high-value transactions is multifaceted, aiming primarily to prevent and detect illegal financial activities and ensure compliance with regulatory requirements. Here are some key reasons:
- Anti-Money Laundering (AML) Compliance: Financial institutions are required to report large transactions to identify and prevent money laundering activities. By tracking these transactions, authorities can detect patterns indicative of money laundering, where illicit money is made to appear legitimate.
- Tax Compliance and Enforcement: High value transaction reports can help tax authorities detect and prevent tax evasion. By monitoring significant financial movements, tax authorities can identify unreported income and ensure that individuals and businesses are paying their fair share of taxes.
- Fraud Detection: Financial institutions can use data from high-value transaction reports to detect potential fraud. Unusual or large transactions can signal fraudulent activity, prompting further investigation.
- Maintaining Financial Integrity: By reporting high value transactions, financial institutions contribute to the overall stability and integrity of the financial system. It helps build trust in the financial system by ensuring transparency and accountability.
- Regulatory Compliance: Financial institutions are often legally required to report high-value transactions to comply with national and international regulations. Failure to comply can result in severe penalties and legal repercussions.
- Customer Due Diligence: Monitoring and reporting large transactions help financial institutions better understand their customers’ financial behavior. This information is crucial for assessing risk and ensuring that institutions are not inadvertently facilitating illegal activities.
In essence, the reporting of high value transactions is a critical component of the broader framework aimed at promoting financial transparency, preventing illegal activities, and ensuring the proper functioning of the financial system.
How does the Income Tax Department Trace High Value Transactions?
1. Annual Information Return (AIR)
Financial institutions and other specified entities are required to file an Annual Information Return (AIR) detailing high-value transactions. This includes information from banks, mutual funds, registrars, and sub-registrars.
Examples of transactions that must be reported include:
- Cash deposits aggregating to ₹10 lakhs or more in a year in a savings account.
- Credit card payments exceeding ₹2 lakhs in a year.
- Investments in mutual funds, bonds, or debentures exceeding ₹10 lakhs in a year.
- Purchase or sale of immovable property valued at ₹30 lakhs or more.
- Purchase of shares worth ₹10 lakhs or more.
2. Statement of Financial Transactions (SFT)
The SFT is a report by specified persons/entities about certain financial transactions. This has replaced the AIR and broadened the scope of reporting. Transactions reported under SFT include:
- Payments made in respect of credit cards above a certain limit.
- Receipt of cash payments exceeding ₹2 lakhs for sale of goods or services.
- Transactions in respect of foreign currency, the purchase or sale of immovable property, etc.
3. Form 26AS
Form 26AS is an annual consolidated tax statement that includes information about tax deducted at source (TDS), tax collected at source (TCS), and other high value financial transactions. It provides a comprehensive view of the taxpayer’s financial activities reported by various entities.
4. Income Tax Return (ITR)
When individuals file their Income Tax Returns, they must declare their income from all sources, including high-value transactions. Discrepancies between reported income and actual high value transactions can trigger scrutiny.
5. Centralized Processing Centre (CPC)
The CPC processes income tax returns and cross-checks the information provided with the data received from third-party sources (such as AIR, SFT, Form 26AS). This helps in identifying discrepancies and potential cases of tax evasion.
6. Project Insight
Project Insight is an advanced data analytics and business intelligence platform used by the Income Tax Department. It leverages big data analytics to track high value transactions and match them with tax returns. The platform helps in identifying tax evasion by analyzing data from multiple sources, including social media, to create comprehensive taxpayer profiles.
7. Compliance Notices
When the Income Tax Department detects a mismatch or identifies a high value transaction that has not been reported, it issues compliance notices to the concerned taxpayers. These notices require taxpayers to explain the source and nature of the transactions.
8. PAN and Aadhaar Integration
The integration of PAN (Permanent Account Number) with Aadhaar helps in creating a unified database of financial transactions linked to individual taxpayers. This makes it easier for the tax authorities to track high value transactions and ensure compliance.
9. Data Sharing with Other Agencies
The Income Tax Department collaborates with other government agencies, such as the Ministry of Corporate Affairs, the Reserve Bank of India, and the Securities and Exchange Board of India, to share data and track high value transactions.
10. Reporting by Property Registrars
Registrars of properties report transactions involving the purchase and sale of immovable property. This information is cross-verified with the returns filed by taxpayers to ensure that the income declared matches the investment made.
These mechanisms ensure that the Income Tax Department has a robust system for monitoring and tracing high-value transactions, thereby curbing tax evasion and promoting transparency in financial dealings.
Action to be taken if Form 26AS Reflects SFT Transactions
When your Form 26AS indicates Specified Financial Transactions (SFT), there are a few steps you should take:
- Verify Accuracy: First, verify that the SFT transactions reported in your Form 26AS are correct. Ensure that the details match the transactions you have actually undertaken.
- Report in ITR: If any high value transactions are reflected in your Form 26AS, make sure to report them while filing your Income Tax Return (ITR). Include these transactions in the relevant sections of your ITR form.
- Calculate Tax Liability: Accurately calculate the tax liability related to these transactions. If you’ve received income from these specified transactions, ensure that it has been duly offered for taxation.
Launch of E-campaign
- Non-filers of Income Tax Returns (ITR) – If you haven’t filed your income tax return, this e-campaign encourages you to do so voluntarily.
- Underreporting of Income – The campaign also focuses on individuals who may have underreported their income in their tax returns.
Who receives Email/SMS of E-campaign from Income Tax Department?
Under the e-campaign, the Income Tax Department sends emails/SMS to identified taxpayers to verify their financial transactions. These emails/SMS are related to information received by the IT department from various sources such as Statement of Financial Transaction (SFT), Tax Deducted at Source (TDS), and Tax Collected at Source (TCS). Here are the categories of taxpayers covered by the e-campaign:
- Individuals who do not file their income tax return – If an individual has carried out a high value transaction in a financial year but has not filed the Income Tax Return (ITR) for that year, the IT Department will notify them through email or SMS.
- Taxpayers with discrepancies/deficiencies in their returns – The e-campaign also targets taxpayers who have discrepancies or deficiencies in their filed returns.
If you receive such an email or SMS, it’s essential to verify and update your email address and mobile number on the e-filing portal to ensure you receive electronic communication
How To Comply With e-Campaign Notice Online and How to submit Response?
The e-Campaign notice is issued by the Income Tax Department to seek clarification on discrepancies found in your tax returns or to gather more information. These notices typically address mismatches between your filed income tax returns and data collected from other sources like Form 26AS, bank statements, mutual funds, etc.
If you’ve received an email or SMS regarding high-value transactions or non-filing of returns, you can respond to the income tax department by following these steps:
Step – 1 Log in to your income tax e-filing account –
Step – 2 Once logged in click on “pending actions” in the drop-down menu, select “Compliance Portal”.
Step – 3 Choose the relevant e-campaign to which you need to submit your response
Step – 4 On the landing page of the e-campaign view, select the information category related to your notice.
Step – 5 Next, choose the specific transaction that triggered the notice.
Step – 6 Finally, submit your response as required by the income tax department.
From the options, select the most appropriate response:
– Information is correct
– Information is not fully correct
– Income is not taxable
– Information relates to other PAN/year
– Information is duplicate/included in other displayed information
– Information is denied
Following are the categories where the response is expected from the taxpayer under e-campaign:
-
- Preliminary Response
- Feedback on Information on AIS
Frequently Asked Questions
3. How can I find out if my transactions have been reported?
Taxpayers can view the reported transactions in their Annual Information Statement (AIS) or Form 26AS available on the Income Tax Department’s e-filing portal.
4. What should I do if I find discrepancies in my Form 26AS?
If you find any discrepancies, you should immediately inform the reporting entity (e.g., bank, mutual fund company) and ensure they correct the information. If unresolved, you may also report the issue to the Income Tax Department.
5. Can high-value transactions be made in cash?
While cash transactions are permitted, they are subject to stricter scrutiny. The government encourages digital transactions to promote transparency and reduce the risk of tax evasion.
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