MyGov, the government’s resident engagement platform, tweeted on 15 August that it will bring precise transactions under its scanner. But the post was later deleted. According to the tweet, companies and institutions will report to the income tax department the details of about 12 specific transactions, such as hotel bills of over ₹20,000, health insurance premium of over ₹20,000, annual electricity bills of over ₹1 lakh, and abroad travel.
Reporting of some high-value transactions is already a part of the statement of financial transactions (SFT), a tax department’s lead whose scope may now widen. “In the July 2019 budget, the finance minister had said that the government will extend the scope of SFT to receive more information for enabling pre-filling of income tax return forms. By doing this, it would be able to catch tax evaders and get more individuals into the tax net,” said Naveen Wadhwa, deputy general manager, Taxmann, a tax, and accounting firm.
WIDENING THE SCOPE
Earlier, banks, mutual funds, and different institutions reported specified transactions under the annual information return or AIR, which was replaced by SFT from FY21.
Transactions, including investments and expenditures surpassing a threshold limit by certain individuals, are reported to the tax department. For example, banks need to file SFT when the total cash deposits in all the savings bank accounts of a consumer exceed ₹10 lakh in a year. Registrars file SFT for transactions of fixed properties where the deal value exceeds ₹30 lakh. Likewise, if you buy mutual funds, bonds, or shares worth over ₹10 lakh, the transactions will be listed by the issuer.
However, the tweet indicates, the government could be preparing to change the current thresholds. The tweet also considered reporting of bank lockers under SFT. “As banks can’t ask for the details of the contents of the locker, I think, if it is executed, the banks will have to report the name and PAN card of the person,” said Amit Maheshwari, tax partner, AKM Global, a consulting firm.
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There’s still no certainty though since the tweet was deleted. “It could be because it came before the information was issued. Typically, such changes are delivered via a notification,” said Wadhwa.
Many chartered accountants think that the government could have also removed the tweet due to the limits that were mentioned.
CATCHING THE EVADERS
The idea behind increasing the scope of SFT is to check if the expense incurred by a taxpayer is in line with the income shown in the income tax return (ITR) filed.
Including more transactions under the scope of SFT will result in a huge amount of data collection, but sifting through it to catch the evaders would be a tremendous exercise. “With the volume of data generated, officials would need to be selective about using it. It should not result in small taxpayers getting targeted to maximize the returns with optimum use of resources,” said Rakesh Nangia, chairman at Nangia Andersen Consulting.
He aimed out similar exercises in the past that was not sufficient. About two decades ago, in 1998, the government had launched a scheme called “One-in-Six”. Under this, taxpayers had to imperatively file ITR if they possessed a house, or a car, or a telephone, or a credit card, or had a club membership, or traveled abroad. “The scheme did not in inducing substantial tax revenues, but increased the agreement burden. The scheme was withdrawn in 2006,” said Nangia.
Other tax specialists agreed that while the purpose of such terms is to increase tax collection, it must be done in a way that large tax evaders are brought into the tax net, instead of creating hardship to small taxpayers.
SHOULD YOU WORRY?
Increasing the range of SFT may not get a direct result in an increase in the agreement burden on the taxpayers as the further transactions will have to be reported by different institutions. The data reported under SFT will be visible in Form 26AS.
“An individual doesn’t need to report anything under SFT when filing returns. However, they should assure that the expense incurred by them, and reported by the separate entities, should be comparable with their taxable income. In case there’s any change, they should be able to explain it,” said Nangia.
Honest taxpayers don’t have to think much about ITR as their transactions are unlikely to not be in sync with the income shown in the ITR they file.
