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High-Value Transactions & Income Tax- A Comprehensive Compliance Portal Guide

The income tax department enforces stringent rules and guidelines on taxpayers. As a taxpayer, you cannot get complacent about the accuracy of your returns, deadlines for filing, and tax payments. Besides unintentional errors and misses, intentional evasion can get you in bigger trouble. You may end up facing massive penalties and legal hassles by going against the rules and guidelines.

The IT department has different data analysis techniques and measures in place to trace individuals who underreport their income or fail to file returns. In this context, it also collaborates with other government agencies to seek information about individuals spending high amounts on transactions but not reporting them. Taxpayers should be aware of how high-value transactions can get them into a fix if they fail to report them intentionally or unintentionally.

We have a comprehensive guide on income tax on high-value transactions and the implications of not reporting them.

Understanding the High-Value Transactions Income Tax Concept

As the name implies, high-value transactions in income tax contexts refer to ones involving large amounts of money. Banks and other institutions report all transactions crossing a certain threshold to the Income Tax Department. The department monitors them because it allows only limited cash transactions in a financial year. People spending beyond the permissible limit for cash transactions may be under the department's radar. In some cases, they may also receive a high value transaction income tax notice.

Banks and other entities are mandated to provide information about specific transactions they register, record, or maintain during the fiscal year. They do it through Form 61A (statement of financial transaction (SFT)) or Form 61B (reportable account). It enables the IT department to track the financial activities of taxpayers engaging in such transactions and ensure tax compliance.

Here are the high value transaction instances reported by banks, companies, government agencies, and mutual fund houses to the department:

  • Cash deposits or withdrawals exceeding Rs. 10 lakh from a savings bank account 

  • Cash deposits exceeding Rs. 10 lakh into a fixed deposit account

  • Sales/purchases of the immovable property exceeding Rs. 30 lakh

  • Cash deposits or withdrawals exceeding Rs. 50 lakh from a current account 

  • Investments in cash exceeding Rs. 10 lakh in stocks, bonds, mutual funds, and debentures

  • Cash payments exceeding Rs. 1 lakh for credit card bills

  • Payments exceeding Rs. 10 lakh for credit card debt using any method except cash

  • Sale of foreign currency exceeding Rs. 10 lakh

  • Domestic business-class air travel, tuition or donations, electricity consumption, and purchase of jewelry, paintings, marble, or white goods, exceeding Rs. 1 lakh

All these are instances of high-value transactions if conducted within one fiscal year.

Tracking of High-Value Transactions by the Income Tax Department

If you think you can get away with high-value transactions without reporting them to the income tax department or paying taxes, you are a mistake. The department has a proper process to track them and ensure that no one is able to conceal them. Remember that the authorities have access to your financial data as they obtain it from banks and government agencies. They follow these steps to monitor your transactions and identify tax evasion or avoidance:

Annual Information Return (AIR)

Banks and other financial institutions are required to submit an Annual Information Return (AIR) with details about transactions exceeding a permissible threshold. For instance, they will update the AIR when you make a cash deposit beyond Rs. 10 lakhs, spend beyond Rs. 30 lakhs on real estate, or invest beyond Rs. 2 lakh in mutual funds in a single calendar year.

Statement of Financial Transactions (SFT)

Statement of Financial Transactions (SFT) includes transactions such as stock and bond purchases, gold and silver purchases, insurance policy purchases, card payments, and foreign exchange transactions. While different reporting thresholds apply for diverse transaction types, anything between 50,000 and 10 Lakh is covered.

Tax Deducted at Source (TDS)

TDS refers to the payer withholding a part of the tax from the payment while making it to the payee. They deposit TDS with the IT department on behalf of the payee. Your employer may deduct tax from your salary and pay it to the department. Your Form 26AS includes information about the TDS.

Additionally, the government has asked banks to deduct 2% TDS on cash withdrawals exceeding Rs 1 crore during the financial year. TDS at 2% is to be deducted for withdrawals of more than Rs 20 lakh for people who have not filed an ITR for the last three financial years. The rate is 5% for cash withdrawals exceeding Rs 1 crore.

Tax Collected at Source (TCS)

TCS refers to a seller of goods or services collecting tax from the customers and depositing it with the IT department. A car dealer deducts 1% tax when you buy a car and submit it to the tax it to the tax. Once again, the TCS information goes into Form 26AS.

Additionally, you must file an income tax return reporting your income, deductions, taxes paid, and refunds claimed each year. The IT department may verify your income sources and spending habits by checking the data on your ITR and comparing it with the details from AIR, SFT, TDS, and TCS.

Getting a High-Value Transactions Income Tax Notice

Capital gains can be categorised into two main types based on the asset's holding period: short-term capital gains and long-term capital gains.

Short-Term Capital Gain:

Getting notice for high-value transactions can be daunting. The IT department takes strict action if form 26AS shows SFT transactions. The taxpayer needs to verify that the reported transactions are correct. They should also ensure reporting the said high-value transaction while filing their return.

At this point, they should check the accuracy of the tax liability calculated on the transaction. Paying attention is crucial because an error or mismatch in reporting such transactions can lead to a notice.

E-Campaign for Voluntary Compliance

An income tax notice for high value transactions is the last thing you want to deal with. Taking relevant measures during reporting, filing, and paying taxes can save you from trouble. Also, the IT department has launched an e-campaign to facilitate voluntary compliance for the convenience of taxpayers. Under e-campaign, they send emails/SMS to relevant people to verify their financial transactions according to the information received from SFT, TDS, TCS, etc. It covers the following categories of assessees/taxpayers:

  • Individuals who do not file their income tax return

  • Taxpayers with discrepancies/deficiencies in their returns

Whichever category you are in, you should take advantage of this e-campaign to save yourself from the trouble of dealing with a high value transaction income tax notice.

How Can You Submit Responses in the Compliance Portal?

Getting an income tax notice for high value transactions in banks or financial institutions can cause a great deal of stress. However, you can use the compliance portal in an effort to handle the high value transactions notice reply in the relevant manner. The Income Tax Compliance portal is a user-friendly platform that enables taxpayers to submit their responses online without visiting the Income Tax Department's office. Here is a step-by-step guide to responding to a high value transaction income tax notice:

Step 1: Login Income Tax Compliance Portal

You can use your PAN number and password to log in to the Income Tax Compliance portal. Users not having a password (or forgetting it) can generate a new one by clicking on the 'forgot password' button

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Step 2: Check the High-Value Transaction
Once you log in, you can check the high-value transaction reported by the IT Department.  Click the Pending actions button, then on the Compliance portal, and finally on E Campaign to see your transaction status.

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Step 3: Pick the Relevant e-campaign

At this point, you will reach the landing page of the e-campaign portal. Here, you can choose the relevant e-campaign. Click on the click on ‘Provide feedback in AIS.’ You will see the“No Compliance Record has been generated for you” message if you do not have any active e-campaigns or e-verifications.

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Step 4: Choose information Category

You will see an “E” mark against the information category for which you may have received the communication. E stands for expected.

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Step 5: Submit the Response

You will see a list of options for responding to the department. Select the most appropriate response among the following:

  • Information is correct

  • Information is not fully correct

  • Information relates to other PAN/year

  • Information is denied

  • Income is not taxable

  • Information is duplicate/included in other displayed information

Once you select the response, it is sent to the IT Department for further processing.

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These simple steps can ease the response process, so you should not hesitate to use the Income Tax Compliance portal. The objective of the portal is to help the taxpayers, and it also ensures complete data security and confidentiality. 

Preliminary Response

The taxpayer has to respond to relevant questions under the ‘Preliminary Response’ section as a part of the process. The queries under the section are based on the type of campaign, such as non-filing of returns or high-value transactions done by the taxpayer. Let us detail the steps for ‘Non-Filing of Income Tax Return’. You will have to submit a response whether you have filed the income tax return or not with the following steps:

  • Click on the ‘Provide Response’ button against the ‘Preliminary Response’ section.

  • Respond by selecting the relevant drop-down.

  • Give more details sought by the income tax department. If the ITR has been filed, you will have to provide the data of filing, mode, circle/ward and city, acknowledgment number, and remarks. If you have not filed the return, you will have to select the reason for not filing and give remarks.

  • Submit the response after filling in the relevant information. You can use the ‘Activity History’ screen to download the preliminary response.

Submit Feedback on Information in AIS

Besides responding to the questions in the Income Tax Compliance portal, you will also need to give feedback on the information under the e-campaign. Provide feedback on the L1 information, marked as ‘Expected’. By following these steps, you can submit your response to the IT department for the high-value transactions notice.

Why Should You Submit Response in the Compliance Portal?

The IT Department keeps a close eye on high-value transactions to prevent black money generation and tax evasion. Taxpayers should comply with the rules regarding high-value transactions to avoid any legal consequences down the road. The Income Tax Compliance portal enables you to submit your response to high-value transaction notices if you get one. The user-friendly platform helps you do it easily without having to visit the Income Tax Department's office.

Remember that you should submit your response in the Income Tax Compliance portal because it is more than a responsible citizenship duty. It is a legal obligation that can save you from legal hassles and penalties. You should keep track of your financial transactions, stick with permissible limits, and comply with tax guidelines while filing returns and paying taxes. In case you miss out on these guidelines, you may get an income tax notice for high-value transactions. You must submit your response in the IT compliance portal as and when required.

 Frequently Asked Questions

Q

 What are high-value transactions?

A

High-value transactions are the ones exceeding a certain limit established by the Income Tax department. The following are considered the annual limits for high value transactions:

  • Savings bank account deposits: Rs 10 lakh

  • Current account deposits/withdrawals: Rs 50 lakh

  • Fixed deposits/ Recurring deposits: Rs 10 lakh

  • Investment in shares, bonds, debentures, or mutual funds: Rs 10 lakh

  • Credit card bill payment: Rs 1 lakh (in cash), Rs 10 lakh (other than cash)

  • Purchase/sale of immovable property: Rs 30 lakh

  • Foreign currency: Rs 10 lakh

Q

What are high value transactions under e-campaign?

A

High value transactions under e-campaigns enable taxpayers to validate their transaction information against information with the IT department voluntarily. Its objective is to promote voluntary compliance and prevent the notice and scrutiny process for taxpayers who have made such transactions.

Q

Where high value transactions should be mentioned in ITR?

A

There is no separate head to report high value transactions in ITR, so they should be reported just like other transactions. However, you may get alerts about the non-disclosure of such transactions through an email and SMS. You should promptly respond to them through the Income Tax Compliance portal following the aforementioned steps.

Q

Are there any penalties for non-disclosure of high-value transactions?

A

Yes, you can expect a penalty amounting to Rs. 500 per day under section 271FA on non-disclosure of high-value transactions.

Q

Is there a limit on the Income Tax limit for online transactions?

A

No limit is prescribed for online transactions by the Income Tax Act. However, it will be reported as a high-value transaction if the amount exceeds a certain limit.

Q

Why should I respond to a high-value transaction notice in the compliance portal?

A

Regulatory authorities make it mandatory for individuals and businesses to submit responses for high-value transactions in the compliance portal. The objective is to ensure compliance with relevant laws and prevent evasion of taxes.

Q

What is the process for accessing the compliance portal for high-value transactions?

A

The process for accessing the compliance portal is pretty simple. All you have to do is visit the official website of the Income Tax Department and follow a set of instructions.

Q

What information do I have to submit in the portal for high-value transactions?

A

The information you have to provide in the compliance portal for high-value transactions depends on the specific transaction and the regulatory authority. In most cases, you will have to provide the basics such as the transaction amount, the purpose of the transaction, and the parties involved in the transaction.

Q

What is the format for submitting responses in the compliance portal?

A

You will typically get specific instructions in the compliance portal for the format and method of response submission. It may require you to enter information into online forms or upload documents.

Q

What happens if you miss out on submitting a response to high-value transaction notice in the compliance portal?

A

You may face dire legal and financial consequences for non-compliance with high-value transaction regulations. These include fines, penalties, and reputational damage. The best piece of advice is to comply with the IT regulations and submit responses as needed.

Q

How can I ensure that my response is complete and accurate?

A

Before submitting your response, you should carefully check the guidelines and instructions in the portal. Ensure you understand what needs to be done and given, and double-check your response for completeness and accuracy before submitting it.

Q

Is it possible to follow up on my response after submitting it to the portal?

A

Yes, you can do it by checking the status on the compliance portal. Alternatively, you can directly contact the regulatory authority. You should maintain records of your submissions and correspondence with the regulatory authority to be on the safe side.

Hope this guide provides all the information you need and addresses all the questions you have regarding responding to high-value transaction notices in the Income Tax Compliance portal.

Prachi Jain

Chartered Accountant

Prachi Jain is a Chartered Accountant with a passion for simplifying finance and tax-related matters through her insightful and informative blogs. With a background in finance and a deep understanding of tax regulations, Prachi has established herself as a trusted source of financial wisdom. Prachi is committed to empowering her readers with the knowledge they need to make informed financial decisions. Her expertise and dedication shine through in every blog post, helping her audience navigate the intricacies of finance and taxes with confidence. Follow Prachi Jain's blog for practical insights and guidance on managing your finances effectively.