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Transactions That Income Tax Department Keeps a Close Watch On

The Income Tax Department analyzes and scrutinizes data/records in order to prevent tax evasion. It consistently monitors details received from all the sources. It keeps a strict eye on all the high value transactions or specified value transactions for the same purpose. Therefore, the taxpayers must understand these basic high value transactions and keep in mind before filing their returns. In this blog, we discuss such 10 high-value transactions that the income-tax department especially keeps track of. Furthermore, we shall discuss some basics of how this data is received by the income tax department and how it deals with it.

How does the Income Tax Department monitor taxes?

As per section 285BA of the Income Tax Act, specified persons are required to furnish the statement of specified financial statements in Form 61A. The form is required to be filed before 31st May of the next year for every previous year. On receiving the details, the income tax department verifies these with the income tax returns filed by the assessee to check whether the expenditure/transactions reported in the form 61A are justifiable or not. If the department does not find it justifiable then it issues a notice to the particular assessee and further takes the necessary action.

Transactions monitored by Income Tax Department

1. Relating to banking companies and cooperative banks

A banking company or a cooperative bank is required to provide the details relating to the following transactions along with the specified limits in Form 61A.

ParticularsTransaction TypeTransaction Limit
Savings AccountCash deposit or Withdrawal during a financial year10,00,000
Current AccountCash deposit or Withdrawal during a financial year50,00,000
Fixed DepositTotal fixed deposits during the year, both cash or other modes than cash (Renewal not included)10,00,000
Credit CardRepayment of credit card bill in cash during a financial year1,00,000
Credit CardTotal repayment of credit card bill in cash or through other modes during a financial year10,00,000
Pay Orders/Demand DraftsPurchase of demand drafts in cash during a financial year10,00,000

2. Relating to investment in a particular company

A company shall provide the required details to the income tax department in case of the following transactions exceeding specified limits:

ParticularsTransaction TypeTransaction Limit
Mutual FundsInvestment in mutual funds of a company during the year in cash or any mode other than cash10,00,000
Bonds/DebenturesInvestment in bonds/debentures of a company during the year in cash or any mode other than cash10,00,000
SharesInvestment in shares including share application money of a company during the year in cash or any mode other than cash10,00,000

3. Share buyback

If a listed company buybacks shares of an amount more than Rs. 10,00,000 from a person, then that listed company is required to provide the detail in Form 61A as a specified financial transaction.

INCOME TAX DEPARTMENT

4. Immovable property

In case of purchase or sale of the immovable property exceeding Rs. 30,00,000, then the registrar or the sub-registrar appointed under Registration Act, 1908, is required to provide the information to the income tax department. Also, note that Rs 30,00,000 is the stamp duty value or the value mentioned in the registry irrespective of the market value. Market value may be high.

5. Foreign currency

If a person purchases foreign currency or expenses incurred in foreign currency via debit cards or traveller’s cheque or any other instrument for more than Rs 10,00,000 in a year, then a foreign currency dealer is required to report this transaction to the income tax department. It is very necessary as the income tax department shall verify that his income should be able to justify his expenses on foreign visits.

6. RBI instruments

Cash payment for purchasing prepaid RBI bonds or other instruments for the amount exceeding Rs. 10,00,000 during a year shall be reported to the department.

7. Cash payment > Rs 2,00,000

If a person makes a payment for any goods or service in cash, of an amount exceeding Rs. 2,00,000 during a financial year to a person who is liable to get his accounts audited under section 44AB of the Income Tax Act, then such person shall report such transaction to the income tax department.

8. TDS or TCS statements

The income tax department verifies whether the return filed by the assessee is in line with the TDS/TCS statements or not. Many times, there are cases when the income reflects in the TDS statement or 26AS but is not disclosed by the assessee in the return. In such cases, the department issues notice to the assessee.

9. Change in ratios

The department compares the basic ratios like gross profit ratio, net profit ratio, turnover, etc., from the previous years and accordingly, issues notice if it finds a major variation from the previous year.

10. Others

The above list is not exclusive. There are various other transactions like the purchase of jewelry, payments to hotels, donations, electricity consumption, payment of life insurance premiums, health insurance premiums, etc.

Conclusion

Please note that this article is just to aware the innocent assessee who sometimes knowingly or unknowingly happens to indulge in such transactions and then face notice from the income tax department. It is not to promote tax evasion.

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CA Preksha Lalwani
CA Preksha Lalwani
A Chartered Accountant by profession, Preksha has a flair for writing descriptive and educative financial articles. She strongly believes in the “Passion to believe, and compassion to achieve” ideology!

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