The department is tracking high-value transactions done by taxpayers to find out people who haven’t filed tax returns or have under-reported their income despite doing a high-value transaction in a financial year. Let’s understand what these high-value transactions are, and how the tax department receives information about them.

There is no specific definition of a high-value transaction. Various entities report transactions above a threshold limit done by a taxpayer to the tax department, which the tax department can reconcile and compare with the return filed. In case the tax return is not filed but the person has done a high-value transaction, the tax department can question that also. Here are the transactions that are reported to the tax department.

Statement of Financial Transactions (SFT)

"SFT is a report to be filed by ‘specified persons’ under Section 285BA, which records every transaction exceeding the threshold limit, including investments and expenditures done by every taxpayer in a financial year," said Naveen Wadhwa, deputy general manager, Taxmann, a tax and accounting firm.

These specified entities, that include 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. Similarly, registrars or sub-registrars have to file SFT for every individual involved in any transaction of an immovable property where the value of the deal exceeds ₹30 lakh. Similarly, if you have bought financial instruments such as mutual funds, bonds or debentures, shares worth ₹10 lakh or more, it will be reported to the tax department by the issuer.

If you have purchased any goods and services and have done a payment of ₹2 lakh or more in cash, then the seller will have to report it in SFT, if he or she is liable for audit under section 44AB of the Act. Taxpayers with sales exceeding ₹1 crore ( ₹2 crore under Section 44AD) or receipts from a profession exceed ₹50 lakh during a financial year (FY) are required to file the ITR along with an audit report.

TCS and TDS statements

Apart from SFT, the tax department gets information from tax deducted at source (TDS) and tax collected at source (TCS) reports filed by various entities. TDS is deducted when a taxpayer receives a payment such as salary, interest income and dividend as per applicable limits. TCS is collected by the seller on payment made by the taxpayers for purchases.

For example, if you have bought a car of more than ₹10 lakh, the seller is required to collect a TCS at the rate of 1% from you. The seller will be reporting this transaction at the time of filing of TCS return. Also, from October 2020 onwards, a few more transactions have been brought under the ambit of TCS. For example, if you buy an overseas tour and travel package of the operator is liable to deduct TCS at 5%.

Authorized foreign exchange dealers receiving an amount of ₹7 lakh or more in a financial year for remittance out of India under the liberalized remittance scheme (LRS) scheme of the Reserve Bank of India (RBI) shall collect TCS at 5% from the buyer.

Apart from salary, there are few other incomes where TDS is deducted by the payee. For example in Budget 2020, TDS at the rate of 10% was introduced on dividend payment by mutual funds in case the dividend is more than ₹5,000. These transactions will be reported to the tax department when these agencies file the TCS or TDS return as applicable.

“So, if a person files a return and income showed is not in line with any of the transactions reported, the tax department can send notice to the taxpayer. For example, if a taxpayer has done a high-value transaction, he can say that he has used the gains from the sale of a property and not from income but then he will have to show that he has paid tax on the gains," said Sudhir Kaushik, CEO, Taxspanner.com, a tax return filing portal.

The idea of capturing high-value transactions is to capture the source of income and to check if the same is reflected in the tax return or not.

The above list is not exhaustive, as there are various ways in which the tax department can track your transactions. There are many transactions such as payment of ₹50,000 to a hotel or restaurant, making a deposit of more than ₹50,000 in a bank, buying goods or services for more than ₹2 lakh, among others, where you are required to report your PAN card.

"A seller has to keep the record of sales above ₹2 lakh against which PAN needs to be quoted. So, if the tax department wants it can reach out to the PAN cardholder and ask the source of income," said Wadhwa.

It is advisable that you keep these transactions in mind while filing your income tax returns. Now, the chances of missing out these transactions while filing the tax returns will be less as some of these high-value transactions will be reported in the new Form 26AS (tax credit statement) of the taxpayers.