Tax High-Value Transactions

This blog will help clarify high-value transactions from an income tax perspective. We’ll start by explaining what constitutes a high-value transaction. Then we’ll look at how the tax department identifies such transactions and why it’s important to submit detailed responses on the compliance portal. Finally, we’ll provide a step-by-step process for filing accurate and complete responses along with answers to some frequently asked questions. With some knowledge of the reporting process and preparation, you can respond confidently to any queries about high-value transactions.

What are High-Value Transactions?

The Income Tax Department keeps a watch on high-value financial transactions undertaken by taxpayers. But what exactly qualifies as a ‘high-value’ transaction?

  • Transactions exceeding Rs 10 lakhs in a financial year in saving bank account and transactions exceeding  Rs 50 lakhs in current bank account.
  • Investment of over Rs. 10 lakh in investment such as fixed deposit or investment in mutual funds etc
  • Sale or purchase exceeding Rs. 30 lakhs for assets. Transactions can involve assets like property, shares, bonds, jewelry, art, bullion, vehicles, etc. The value is based on the consideration amount, not asset value.
  • Other examples include business payments, credit card spends, investments, foreign remittances, etc. exceeding Rs. 1 lakh
  • Payment exceeding Rs. 1 lakh for electricity bill, business class air travel, jewellery purchase purchase of paintings and large home appliances.

So, high-value transactions for income tax purposes are ones crossing the specified limits relevant to the taxpayer in a financial year. Being aware of the thresholds can help you determine if any transaction needs to be reported in tax filings.

How does the Income Tax Department Trace High-Value Transactions?

The Income Tax Department has set up an extensive information network , they are getting data from banks, other institutions wherein they get specific data based on threshold limits.

  • Banks, credit card companies, mutual funds and other financial institutions have to report cash deposits or payments above Rs 10 lakhs made by any individual or entity.
  • Registration authorities share data on property purchases valued at Rs 30 lakhs or more with the IT Department.
  • Jewelers, art galleries, luxury car dealers etc. are required to report high-value purchases.
  • The tax department also analyzes foreign remittances, education loan applications, investment in bonds and shares, and obtains information from RBI, SEBI, etc.
  • The Annual Information Return captures high-value transactions related to businesses, professionals and other taxpayers.
  • The IT Department runs data analytics tools to match incomes declared by taxpayers with their spending patterns.
  • Inconsistencies between income tax returns, Annual Information Returns, TDS records, and reported transactions are flagged for scrutiny.
  • The compliance portal allows taxpayers to view the reported high-value transactions and provide clarification.
  • Field investigations are conducted and third-party inquiries made in cases of suspected tax evasion using unlawfully acquired money.

The income tax department relies on both voluntary reporting of high-value transactions from various sources as well as technology tools to trace and tally such transactions. Taxpayers must thus be prepared to substantiate any large transactions if required.

How to submit responses on the Income Tax Compliance Portal for high-value transaction?

The Income Tax Department allows taxpayers to submit online responses and documents explaining high-value transactions through the Compliance Portal. Follow these steps:

  1. Access the Compliance Portal by logging into your e-filing account on Income Tax. Go to the ‘Compliance’ section.
  2. The portal will display any pending high-value transactions requiring additional response from you. Click on the relevant transaction.
  3. You will see the details of that transaction such as amount, date, parties involved, etc. Go through the details carefully.
  4. If you need to explain the source of funds, relationship with transacting parties, or provide supporting documents, click on ‘Submit Response’.
  5. An online form will open up where you can provide a detailed explanation for the transaction in the given text box.
  6. Upload scanned copies of any documents you wish to furnish as proof – KYC papers, account statements, invoices, receipts, etc.
  7. Double check that your response and documents accurately explain the transaction before submitting the final response on the portal.
  8. You can submit multiple responses on the portal to address all high-value transactions requiring clarification.
  9. Maintain digital copies of the responses filed and documents uploaded for future reference.
  10. The tax department will review your responses and may get back for additional clarification if needed.

Following these steps and providing complete, accurate responses through the online compliance portal can help resolve any queries about high-value transactions faster.

Why is it important to Submit Responses in the Compliance Portal?

Responding to high-value transaction notices on the compliance portal is critical for the following reasons:

  • It helps provide clarity to the IT department on the source, nature and purpose of the transaction. Thorough explanations can avoid further inquiries.
  • The compliance portal serves as an official channel of communication with the tax department. Responses filed here are formally acknowledged.
  • It avoids misrepresentation of facts. The portal provides an opportunity to present supporting documents, avoiding confusion.
  • Detailed, timely responses are viewed positively compared to ignoring/delaying responses. It reduces chances of a scrutiny assessment.
  • The online portal enables tracking of query status. You can check if the tax department has closed the query or needs additional details.
  • Unlike verbal clarifications, portal submissions are documented. The history of compliance can be relied upon during future assessments.
  • Non-compliance can attract penalties of up to Rs 10 lakhs under Section 271FA. Pending queries also impede processing of tax returns.
  • Taxpayers may be placed on a non-filer monitoring list for failure to submit investment proofs online despite formal notices.

Therefore, it is prudent to provide complete and accurate responses on the portal within the prescribed timelines. Taking the process seriously can save future tax hassles and establish compliance with tax reporting obligations related to high-value transactions. Maintaining proper documentation also enables hassle-free portal submissions.

Who can receive emails/SMS notices from the Income Tax Department?

The Income Tax Department sends out system-generated emails and SMSes to taxpayers regarding various matters including:

  • High-value transaction alerts – To registered users who have undertaken such transactions
  • Tax payment reminders – To taxpayers with outstanding tax dues
  • Requests for additional information/documents – To those selected for scrutiny assessment
  • Notices for non-filing/late filing of ITR – To non-filers based on third-party financial data
  • Password reset links – When requested by registered users
  • Portal and e-filing updates – To all registered users
  • Intimations about processing of returns, refunds, adjustments – To the concerned assessees
  • Notifications about responses filed by taxpayers – To provide status updates

The following categories of taxpayers and users are likely to receive emails or SMS messages from the income tax department:

  • Those registered on the e-filing portal with valid PAN and mobile numbers
  • Persons who have conducted high-value transactions
  • Non-filers or belated return filers
  • Taxpayers selected for scrutiny or compliance verification
  • Those with pending demands or queries
  • Recipients of refunds, processing of IT returns, 26AS updates etc.

Keeping contact information updated on the e-filing portal ensures quick receipt of any important intimation from the IT department. Taxpayers can also opt for email/SMS alerts for better tracking.

FAQs on High-value transactions

Q1. What are high-value transactions?

High-value transactions refer to large financial transactions exceeding a specified monetary threshold based on the taxpayer category – Rs 10 lakhs per year for individuals and Rs 50 lakhs for businesses and professionals. These include cash deposits, credit card payments, property purchases, investments etc. crossing the threshold.

Q2. Why do I need to submit a response for high-value transactions?

The Income Tax Department monitors high-value transactions to detect any discrepancy between income declared and spending patterns. Submissions through the compliance portal help clarify source of funds, purpose, etc. to avoid further notices.

Q3. How do I access the compliance portal for high-value transactions?

Log in to your e-filing account on incometax.gov.in and navigate to the ‘Compliance’ section. The portal will list any pending transactions requiring your response.

Q4. What information do I need to submit in the compliance portal?

You need to provide a detailed explanation of the transaction and purpose along with supporting documentation wherever required. PAN, bank statements, invoices, asset purchase agreements etc. should be attached.

Q5. What format should I use for submitting responses?

Responses can be provided directly in the online text box. Attach scanned copies of documents in PDF format – ensure these are clear and legible. Maintain backups of responses.

Q6. What happens if I don’t submit a response?

Non-compliance can lead to penalties, scrutiny and delays in processing returns. Submissions help establish the authenticity of transactions.

Q7. How can I ensure my response is accurate and complete?

Review all details thoroughly before final submission. Keep copies of confirmation emails/messages sent by the portal regarding your response submission.

Q8. How can I follow-up on my response?

Track the query status on the portal. You will be intimated once the response is processed. If further clarification is needed, provide details sought promptly.

For more information: info@taxvic.com

taxvic

By TAXVIC

Leave a Reply

Discover more from TAX VIC

Subscribe now to keep reading and get access to the full archive.

Continue reading