New Tax Reform to Help IT Department Identify Tax Evaders. Know How…
Listen to New Tax Reform to Help IT Department Identify Tax Evaders. Know How…
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The Central Board of Direct Taxes (CBDT) has carried out various reforms in the past few years such as lowering of the corporate tax rate, personal income tax rejig, simplification and transparency of laws, and measures to make tax filing easier for individuals. Now its focus is on piloting faceless taxation regime whereby there will be no interaction between the taxpayer and the tax officer.
Under this system, an Income Tax (IT) officer, randomly selected from anywhere in the country, will scrutinize cases. This is likely to eliminate harassment of honest taxpayers and discourage subjective judgements on the part of the tax officer leading to fair and just assessment.
One of the crucial aspects for the faceless assessment is broadening of specified financial transaction (SFT) report by third parties. SFT report is a report of certain high-value financial transactions by specified persons (third parties).
It includes transactions such as cash deposit/withdrawal from saving bank accounts, sale/purchase of immovable property, time deposits, credit card payments, purchase of shares, debentures, foreign currency, mutual funds, buy back of shares, cash payment for goods and services, etc.
'Specified persons' like banks, mutual funds, institutions issuing bonds and registrars or sub-registrars etc., report such transactions with regard to individuals having high-value financial transactions during a particular financial year under Section 285BA of Income-tax Act, 1961.
CBDT in its July 18, 2020 notification stated that all such information under different SFTs will be shown in part E of the new Form 26AS. It stated:
"The new Form 26AS is the faceless hand-holding of the taxpayers to e-file their income tax returns quickly and correctly. From this Assessment Year, taxpayers will see an improved Form 26AS which would carry some additional details on taxpayers' financial transactions as specified in the Statement of Financial Transactions (SFTs) in various categories.
It is stated that the information being received by the Income Tax Department from the filers of these specified SFTs is now being shown in Part E of Form 26AS to facilitate voluntary compliance, tax accountability and ease of e-filing of returns so that the same can be used by the taxpayer to file her or his income tax return (ITR) by calculating the correct tax liability in a feel-good environment. This would also bring in further transparency and accountability in the tax administration."
Earlier it was reported that high-value transactions will have to be reported by the tax payer in the Form 26AS. However, as per media reports, a finance ministry official has clarified that the taxpayers will not have to report such high-value transactions while filing returns. Such transactions will be reported to the IT department by the third parties (specified persons).
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This reporting by the third party will ensure that individuals who undertake high-value transactions such as purchase of jewellery, white goods, painting, etc. above Rs1 lakh, deposit/credits in the current account above Rs 50 lakh, domestic business class air travel or foreign travel, etc. do not evade the scrutiny of the IT department. These individuals are potential taxpayers and should file income tax returns.
The IT department will use the third party data reports to identify those who are not filing the returns and/or cases where the income disclosed in the returns are not proportionate to the pattern of expenditure reported in the SFTs.
It is a non-intrusive method to identify big spenders, who claim their income (to be) under the maximum amount not chargeable to tax.
[Read: 10 Benefits Of Filing Your I-T Return On-Time]
The government has already made tax filing mandatory for individuals carrying the following transactions even if their income is below the taxable limit:
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Payments towards electricity consumption bill of more than Rs 1 lakh per annum
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Making deposits of an amount or an aggregate of the amounts exceeding Rs 1 crore in one or more current account
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Expenditure on travel to a foreign country for self or others for an amount exceeding Rs 2 lakh
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For claims on the rollover benefit of exemption from capital gains tax on investment in specified assets like houses, bonds, etc., if prior to the claim of the rollover benefits, total income is more than the maximum amount not chargeable to tax
Considering that the country's taxpayer base is extremely small, the move can help in increasing the taxpayer base by ensuring that those who have the ability to incur large expenditure fulfil their duty of paying taxes and file income tax returns on time.
The IT department expects that third-party reporting of high-value transactions to nudge non-filers towards voluntary compliance of filing their returns and paying their due tax. Identification of tax evaders will also help in delivering justice to honest taxpayers. If the tax base widens, it could give the government more fiscal space to lower the tax burden on honest taxpayers.
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Warm Regards,
Divya Grover
Research Analyst
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