Think Your Big Transactions Go Unnoticed? Income Tax Department Is Already Watching

Several taxpayers think non-disclosure of high-valued transactions in income tax returns (ITRs) is not noticed by the tax authorities. However, they are wrong. Activities in which high-valued transactions are made, such as cash deposits, property purchases, mutual fund investments, etc., are now automatically reported to the Income Tax Authorities through the Statement of Financial Transaction (SFT).

Now, numerous taxpayers are not even aware of what SFT is, so it is a compulsory reporting framework under which financial institutions, companies, and registrars are required to share details of high-valued transactions made by taxpayers with the Income Tax Department.

These reports are shared with the tax department electronically, usually before May 31 after the end of a financial year. Some transaction details related to the market, like those involving listed securities or mutual funds, are shared even more quickly.

The SFT framework has been introduced to find out income discrepancies, undisclosed investments, and suspicious cash utilisation. Several transactions are reported when their value crosses a certain limit. Here is a list of such limits:

Banking and cash transactions

• Cash deposits of Rs 10 lakh or more in savings accounts in a financial year
• Cash deposits or withdrawals of Rs 50 lakh or more in current accounts
• Cash payments above Rs 10 lakh for bank drafts, payment orders, or prepaid instruments

Credit card spending

• Cash payments of Rs 1 lakh or more as annual credit card bills
• Total credit card payments exceeding Rs 10 lakh in a year through any mode

Investments and financial assets

• Fixed or term deposits exceeding Rs 10 lakh (excluding renewals)

Investments of Rs 10 lakh or more in Mutual funds, Property and large purchases and Foreign exchange transactions:

Mutual funds

• Shares
• Bonds or debentures
• Share buybacks worth over Rs 10 lakh

Property and large purchases

• Purchase or sale of immovable property valued at Rs 30 lakh or more
• Cash payments exceeding Rs 2 lakh for goods or services

Foreign exchange transactions

• Forex purchases or foreign currency expenses above Rs 10 lakh annually

When transactions reported by financial institutions, companies, and registrars to the tax department do not match those reported in the tax return, then there are high chances that the concerned taxpayer may receive a tax notice asking for clarification.