What are Income Tax High-Value Transactions?

The Income Tax Department works with various government agencies to keep track of individuals making high-value transactions but do not file ITR or underreporting the income. There are certain thresholds fixed by the department for specific transactions. If an individual exceeds the specified threshold, they are categorized as high-value transactions, referred to as SFT (Statement of Financial Transactions). 

The banks or financial institutions need to report such transactions to the Income Tax Department. To keep track of these high-value transactions, the Income Tax Department has mandated filing ITR, deducting TDS on cash withdrawals, and updating Form 26AS. The taxpayer must check the transactions and report them in the ITR accurately to avoid penalties or legal notices. 

The department has set up a compliance portal to help taxpayers report such transactions voluntarily to ensure compliance. You will receive notices related to SFT transactions if you carry out high-value transactions. Keep reading this blog to understand how to respond to such notices. 

What are High-Value Transactions?

Banks and other institutions report financial transactions to the Income Tax Department that involve large amounts of money if they exceed a specific threshold limit. The Income Tax Department tracks high-value transactions closely using the statement of financial transaction (SFT) in Form 61A or a reportable account in Form 61B.

It requires specific designated entities to report information regarding high-value transactions by May 31st of the following financial year. 

High Value Transaction Example

The table below highlights the list of transactions that may attract a notice from the Income Tax Department, as this data is gathered from the respective reporting authorities:

Steps Taken by the IT Department to Track High-Value Transactions?

Here are some of the measures taken by the Income Tax Department to monitor high-value transactions:

Mandatory Return Filing 

If an individual's income exceeds Rs. 2.5 lakhs (old tax regime), or Rs. 4 lakh (new tax regime), filing an ITR is mandatory. Additionally, if the individual has carried out certain specified high-value transactions, they must file an ITR even if the income is below the regime thresholds. 

TDS on Cash Withdrawal 

The government has suggested that the banks must deduct TDS at a rate of 2% on cash withdrawals of more than Rs. 1 crore during the fiscal year to track high-value transactions. In case the person doesn't file the ITR for the last three financial years, TDS shall be deducted at 2% for cash withdrawals exceeding Rs. 20 lakhs up to ₹1 crore and 5% above ₹1 crore for non-filers. 

Updated Form 26AS

Form 26AS is upgraded by the department to show Specified Financial Transactions (SFT). Additionally, it has introduced the Annual Information Statement (AIS) through which you can check all the financial details. The specified institutions must report transactions that exceed the threshold to the Income Tax Department, such as registrars, banks, stock exchanges, post offices, etc. 

These transactions are then mentioned in the AIS portal to help the taxpayers disclose all the information voluntarily based on the information in the Annual Information Statement. 

What Actions Need to be Taken if Form 26AS Reflects SFT Transactions?

Follow the steps below if Form 26AS reflects SFT transactions:

• The taxpayer must check whether the SFT transactions reported in Form 26AS are accurate.
• While filing the ITR, they must report the mentioned high-value transactions.
• Avoid any errors or discrepancies in reporting the tax liability, as it might attract an income tax notice. 

Who Receives the Email/SMS of the E-Campaign from the IT Department?

The Income Tax Department sends an email/SMS under an e-campaign to the identified taxpayer. It's sent to verify the taxpayer's financial transactions regarding information received by the IT department from various sources, like SFT, TDS, TCS, etc. You may receive an email/SMS from the e-campaign in the following situations:

• Mismatch/ Missing Information in your Income Tax Returns: Mismatch doesn't always mean that the information is hidden. Instead, it can be due to mistakes in the AIS. So, you must disclose such errors to the IT department by 'Providing feedback on AIS'. 
• You Have not Filed an Income Tax Return: Even when the income tax return was accurately filed, you must share feedback upon receiving such notice. 

How to Submit a Response and Comply with the E-Campaign Notice Online?

You can respond to the income tax department in case you receive an email or SMS for high-value transactions by following the steps below:

Step 1: Visit the Income Tax e-filing Account: Log in to your income tax e-filing account. 

Step 2: Choose the e-Campaign Option on the Homepage: Go to Pending Actions > Compliance Portal > e-campaign (AY 2021-2022 Onwards). Now, you will be redirected to the landing page of the e-filing portal. 

Step 3: Choose the Relevant e-campaign: Choose the appropriate e-campaign and click on 'Provide feedback in AIS'. 

• You will receive a message - 'No Compliance Record has been generated for you'. If you don't have any active e-campaigns or e-verifications. 
• High-value transactions or non-filing or income tax returns information will be shown under the 'e-campaign' list.

Step 4: Choose the Information Category and Transaction: An 'e' would be marked against the information category for which you received the communication. Additionally, the information on which feedback is needed would be marked as 'Expected'. 

Step 5: Submit the Response: Choose the most appropriate option from the following option:

• Income is not taxable
• Information is accurate
• Information is denied
• Information is not fully accurate
• Information relates to other PAN/year
• Information is duplicated/included in other displayed information

Below are the categories where the taxpayer can expect a return under the e-campaign:

• Preliminary Response
• Feedback on Information on AIS 

What are Preliminary Responses?

Preliminary Response requires the taxpayer to respond to relevant questions. It contains queries related to campaign types (non-filing of return/certain high-value transactions done by the taxpayer). 

For example, for the 'Non-Filing of Income Tax Return' campaign type, the taxpayer needs to submit a response regardless of whether they have filed an income tax return or not. Here are the steps to do the same:

• Step 1: In the 'Preliminary Response' section, click on the 'Provide Response' button. 
• Step 2: Next, respond by choosing the appropriate drop-down. 
• Step 3: Submit additional information as requested by the Income Tax Department. 
• Step 4: Submit the response after entering all the required information. View the 'Activity History' screen to download the submitted preliminary response. 

If the question is 'Whether the Income Tax Return (ITR) has been filed?, You need to submit the following additional details:

ITR Has Been Filed

If the ITR has been filed, provide the following details:

• Date: Choose the date of the income tax return filing. 
• Acknowledgement Number: Provide the acknowledgement number generated for the income tax return filed for the relevant assessment year. 
• Mode: Choose the mode of filing the ITR, which means e-filed return/ paper filed return. 
• Circle/Ward and City: Enter the taxpayers' circle/ward and city. 
• Remarks (optional): Provide remarks for ITR. 

ITR Has Not Been Filed 

Provide the following information if the ITR has not been filed:

• Remarks: Provide remarks for not filing the ITR. 
• Reason: Choose the reason for not filing the ITR. 

What Does Feedback on Information in AIS Mean?

Under the e-campaign, you must provide feedback on the information where no feedback has been provided. Also, you must provide feedback on the L1 information, marked as 'Expected'.

This way, you can submit a response to the Income Tax Department regarding a notice on high-value transactions or non-filing of the income tax return. 

Furthermore, if you don't have any active e-campaigns or e-verifications, you will receive the message: "No compliance record has been generated for you." 

Why Submit a Response in the Compliance Portal?

To avoid tax evasion and unlawful cash flow, the Income Tax Department keeps track of high-value transactions. The Income Tax Compliance Portal has a user-friendly platform, and everything can be handled online without the need to visit the tax office.

Simply follow the steps mentioned above and submit your response easily on time. Additionally, taxpayers must keep track of their financial moves and utilize the compliance portal whenever required. 

E-Campaign Launch 

The Income Tax Department has introduced an e-campaign, using which taxpayers can ensure voluntary compliance with the Income Tax Provisions. The campaign focuses on the taxpayers who are either non-filers of the income tax return or have mismatch/ missing information in their returns. 

To Conclude

High-value transactions are monitored through the Annual Information Statement (AIS) and Statement of Financial Transaction (SFT). The e-campaign was launched by the Income Tax Department to send messages and emails to taxpayers who have either missed filing their Income Tax Returns or failed to report high-value transactions. The aim behind this campaign is to help taxpayers avoid any legal notices by encouraging voluntary compliance. 

Additionally, if you have also received an email from the Income Tax Department for high-value transactions, consider seeking guidance from an expert at Savetaxs. We have a team of experts who can assist you in responding to such notices. Our team can help you with every tax-related issue, including tax planning, notice resolution, and much more. Contact us right away as we are working 24/7 across all time zones.