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GST and direct tax compliance
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File ITR in 3 minutes
For Personal Tax and business compliances
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Updated on: Nov 19th, 2024
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4 min read
The income tax department uses various data analysis techniques to trace individuals who have not filed income tax returns or have underreported their income. As part of this effort, the department is collaborating with different government agencies to obtain information about individuals spending high amounts but not filing ITR or underreporting their income.
Latest Update:
The Central Board of Direct Taxes (CBDT) has instructed self-reporting organizations (SROs), including banks, post offices, co-operatives, fintechs, and mutual fund houses, to provide detailed information about high-value transactions carried out during the financial year by 31 May of the immediate next financial year.
Banks and other institutions report high-value transactions involving large amounts of money to the Income Tax Department if they cross a certain threshold.
The income Tax department closely monitors high-value transactions through the concept of a statement of financial transaction (SFT) in Form 61A or a reportable account in Form 61B submitted by specific entities. These entities are mandated to provide information about particular high-value transactions that they have registered, recorded, or maintained during the fiscal year by 31 May of the immediate next fiscal year. This enables the Income Tax Department to track an individual’s financial activities and ensure tax compliance.
Here is a list of transactions that may trigger a notice from the Income Tax Department, as this data is collected from the respective reporting authorities:
Below are some of the measures taken by the department to trace high-value transactions:
Firstly a taxpayer must verify that the SFT transactions reported in the Form 26AS are correct. Subsequently, a taxpayer must ensure to report the said high-value transaction while filing the ITR, and that the tax liability on the same has been accurately calculated. Any error or mismatch in reporting such transactions may trigger an income tax notice.
The income tax department has launched an e-campaign for the voluntary compliance of income tax for the convenience of taxpayers.
The campaign focuses on the assessees/taxpayers who are either:-
Under e-campaign, the income tax department sends emails/SMS to identified taxpayers to verify their financial transactions related to information received by the IT department from various sources such as SFT, TDS, TCS, etc. The department can collect information related to GST, imports/exports, and transactions in securities, derivatives, commodities and mutual funds through various third parties.
You may receive an email/SMS from the e-campaign when:
If you have received an email or SMS for high-value transactions or non-filing of returns, you can respond to the income tax department by following the below steps:
Step 1: Log in to your income tax e-filing account.
Step 2: In the home page, go to ‘Pending Actions’> Compliance Portal > ‘e-Campaign (AY 2021-22 Onwards)’.
Step 3: Select the relevant e-campaign.
After redirecting from the e-filing portal, the landing page of the e-campaign view will be displayed. Select the relevant e-campaign and click on ‘provide feedback in AIS’.
If you don’t have active e-campaigns or e-verifications, you will get the message – “No Compliance Record has been generated for you”.
For example, in the case of high-value transactions or non-filing of income tax returns, it will show the below information under the ‘e-Campaign’ list.
Step 4: Select the information category
‘e’ would be marked against the information category for which you have received the communication.
Step 5: Select the Transaction
The information on which feedback is required would be marked as ‘Expected’.
Step 6: Submit Response
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:
Under the ‘Preliminary Response’ section, the taxpayer is expected to respond to relevant questions. The queries under the Preliminary Response section are based on campaign type (non-filing of return/certain high-value transactions done by the taxpayer).
For example, for campaign type – ‘Non-Filing of Income Tax Return’, the taxpayer is expected to submit a response whether an income tax return has been filed or not.
Step 1: Click on the ‘Provide Response’ button provided against the ‘Preliminary Response’ section.
Step 2: On the next page, respond by selecting the relevant drop-down.
Step 3: Provide additional details as required by the income tax department. For example, For the question ‘Whether Income Tax Return (ITR) has been filed?’ the following additional details are required:
Step 4: After filling in all the relevant information, submit the response. You can download the preliminary response submitted from the ‘Activity History’ screen.
If you don’t have active e-campaigns or e-verifications, you will get the message – No Compliance Record has been generated for you.
The Income Tax Department keeps an eye on high-value transactions to stop tax dodging and illegal cash flow. To steer clear of trouble, taxpayers have to stick to the income tax rules for high-value transactions. Luckily, the Income Tax Compliance portal is a breeze to use. You can handle everything online without making a visit to the tax office. Just follow the simple steps listed above, and you can submit your response hassle-free and on time. Remember, using the Compliance portal is not just a legal must-do, it’s also about being a responsible citizen.
When taxpayers follow the income tax rules for high-value transactions, they help the country’s economy grow and develop. So, it’s crucial for taxpayers to keep tabs on their financial moves and use the Compliance portal when needed. If you’re feeling lost when responding to notices, our experts are here to help you through the process and make sure you get it right.
On the Income Tax Compliance Portal, you can also check out your Annual Information Statement, e-Campaigns, e-Proceedings, and DIN Authentication of the notice that you receive.
You have to provide feedback on the information under the e-campaign, where no feedback has been provided. You must provide feedback on the L1 information, which is marked as ‘Expected’ as shown in the below screenshot.
To know more about how to give feedback, you can click on the link: Submit feedback on information in AIS.
In this way, you can submit the response to the income tax department for the notice on the high-value transactions or non-filing of the income tax return.
High-value transactions are financial transactions which exceed a certain threshold set by the Income Tax Department.
As per Income Tax department, following will be considered as high-value transactions if they exceed the following limits:
Annual Information Return (AIR): To keep tabs on significant financial activities, the tax department mandates that banks and other financial institutions submit an AIR annually. This report contains details about the transactions which exceed a certain limit.
For example, if you deposit more than Rs. 10 lakh in cash within a single calendar year, invest over Rs. 2 lakh in mutual funds, or expend more than Rs. 30 lakh on real estate, these details will be updated in the AIR.
Statement of Financial Transactions (SFT): SFT includes a wide range of transactions compared to AIR. This includes credit card payments, forex transactions, purchase of shares and bonds, insurance policy, gold and silver. As discussed above, the reporting thresholds vary for all these transactions.
Tax Deducted at Source (TDS): TDS is the a portion of the tax deducted and withheld from the payment before making payment to the payee. This tax amount will be directly deposited with the income tax department by the payer on behalf of the payee. For instance, if a company credits your salary, it will deduct tax and submit it to the Income Tax Department. All your TDS transaction details will be reflected in your Form 26AS.
Tax Collected at Source (TCS): Similar to TDS, TCS occurs when sellers of goods or services collect tax from customers and remit it to the income tax department. For instance, if you purchase a car exceeding 10 lakh, the seller will collect a 1% tax and forward it to the tax department. Your Form 26AS also includes details about TCS.
Income Tax Return (ITR): Filing an ITR annually is mandatory, wherein you report your income, deductions, pay taxes and claim refunds. The tax department cross-references the data on your ITR with information obtained from AIR, SFT, TDS, and TCS to verify your income sources and spending patterns and if the information reported in ITR is correct.
Objective of the e-campaign high value transactions is to facilitate taxpayers to voluntarily validate their financial transaction information against information available with the Income Tax department and promote voluntary compliance, so that they don’t need to get into notice & scrutiny process.
Part E of Form 26AS contains all the details of high value transactions.
High value transactions are not separately reported in ITR. Instead, they are reported in the same manner as other transactions. However, the tax department sends alerts about non-disclosure of high-value transactions through an e-mail and SMS. You can respond to it online following the steps discussed above.
Not reporting high-value transactions will attract a penalty of Rs. 500 per day under section 271FA.
The following transactions will be reported as high-value transactions if it exceeds the threshold limit:
The Income Tax Act does not prescribe any limit for online transactions. However, if the amount exceed a certain limit, it will be reported as high-value transaction.
Step 1: Log in to your income tax e-filing account.
Step 2: In the home page, go to ‘Pending Actions’> Compliance Portal > ‘e-Campaign (AY 2021-22 Onwards)’.
Step 3: Select the relevant e-campaign.
Step 4: Select the information category
Step 5: Select the Transaction
Step 6: Submit Response
Refer to the detailed step-by-step guide given above.
You can follow up on your response by checking the status in the compliance portal or contacting the regulatory authority directly. Keeping records of your submissions and any correspondence with the regulatory authority is a good idea.
Multitasking between pouring myself coffees and poring over the ever-changing tax laws. Here, I've authored 100+ blogs on income tax and simplified complex income tax topics like the intimidating crypto tax rules, old vs new tax regime debate, changes in debt funds taxation, budget analysis and more. Some combinations I like- tax and content, finance & startups, technology & psychology, fitness & neuroscience. Read more
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