“People paying taxes in this country are too less. While filing income tax returns has increased by about 2.5 crore in the last 6-7 years, only 1.5 crore people pay taxes in a country of 130 crore”  – Shri  Narendra Modi on  launching of the ‘Transparent Taxation – Honoring the Honest’ platform on 13^th August, 2020

Government is attempting to make the tax system seamless, painless, face-less. In the last few years, basic exemption limit has been enhanced, tax slab has been widened & tax rates have been reduced drastically. Now, the Government has placed its third eye for widening the tax base & deepening the taxpayer’s pocket. Flow of voluminous Data, artificial intelligence, inter linking of various agencies, system driven working, is all set to change the tax administration pattern in the country. New measures taken by the Government will bring several transactions under income tax scanner.

Statement of Financial Transaction (SFT):

An obligation is already there on Bank, mutual funds, institutions issuing bonds, registrars/sub-registrars & other organizations to furnish the statement titled “Statement of Financial Transactions (SFT) on yearly basis. SFT is required to be filed annually u/s 285BA wherein transactions exceeding the threshold limit of investments, payment, deposits, or expenditures in a financial year of taxpayer is required to be filed. Presently, the following transactions are covered by SFT:

1. Aggregate cash deposit for Rs 10 lakh or more in saving bank account.

1. Purchases of bank drafts, pay orders, purchase orders or bankers cheque in cash for Rs 10 lakh or more in a year.
2. Cash payment made for Fixed Deposits amounting Rs 10 lakh or more in a year.
3. Purchase of any pre-paid instruments issued by RBI of Rs 10 lakh or more in a year.
4. Cash deposit or withdrawal amounting Rs. 50 Lakh or more in one or more current accounts of a person in a year.
5. Cash received for amount exceeding Rs. 2 Lakh for the sale of goods or rendering of services.
6. Expenditure in foreign currency via debit card, credit card or traveler’s cheque for the amount Rs.10 Lakh or above in a year.
7. Payment by credit card amounting Rs.10 Lakh or above in a year
8. Credit card bill paid in cash for Rs 1 lakh or more.
9. Purchase or sale of immovable property of Rs. 30 Lakh or above.
10. Mutual Fund Investment in a year of Rs 10 lakh or more.
11. Purchase of bonds or debentures for Rs 10 lakh or more in a year.
12. Purchase of shares of company through the public offer or right issue for Rs 10 lakh or more.
13. Share buy-back from a person amounting Rs. 10 lakhs or more.

The Government has taken a slew of measures to widen & deepen the tax base by including few more items in SFT.

I] Widening the scope of SFT:
With digitalization and linking of aadhar, the data of the citizens are available at various platforms. Government is set to channelize all such data & link with the income tax return of the taxpayers. The finance ministry has now proposed to expand the scope of SFT so as access certain micro level transactions as well. Expanded list of transaction shall consist of the following items:

1. Education-related fees and donations above Rs 1 lakh in a year
2. Electricity bill of more than Rs 1 lakh in a year
3. Domestic business class air travel or foreign travel
4. Hotel bills above Rs 20,000
5. Purchase of jewellery, white goods, paintings, marble, etc above Rs 1 lakh
6. Deposits or credits in current account above Rs 50 lakh
7. Deposits or credits in non-current account above Rs 25 lakh
8. Payment of property tax above Ra 20,000 per annum
9. Payment of life insurance premium above Rs 50,000
10. Payment of health insurance premium above Rs 20,000
11. Share transactions, demat account, bank lockers

Above reporting will result in enhanced flow of information to tax authorities. In July-2020, Government had launched a Revised Form 26AS (i.e., a consolidated Annual Information Statement (AIS) showing TDS, TCS, Advance Tax, IT Refund, ETC) so as to share the data with the taxpayers all high-value transactions available with the Government. This new additional data now proposed to be collected would also be made available to the taxpayers in Form 26AS. This would create greater onus on the taxpayers to comply in a voluntary manner.

II] Different Tax Rates for Return files vs. Non Filers:

Apart from this, now the differential TDS rates are proposed for persons who are filing their income tax returns vis a vis person who are not filing it. The return filing has been proposed to be made compulsory for all those who are having bank transactions above Rs 30 lakh.

III] Mandatory Return filing for few persons:

Now, all professionals and businesses having turnover of more than Rs 50 lakh and payment of rent above Rs 40,000 will be mandatorily required to file the income tax return.

Furnishing of PAN/Aadhar would likely be made mandatory while carrying out above transactions. There are going to be some trouble for few taxpayers as the concept of beneficial vs. registered person in above transactions may be different. However, if used properly, these measures are sure to widen & deepen the tax base, ensure better compliance and higher revenue collection in the Government Treasury.

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