How financial transactions are tracked by the income tax department

High value financial transactions beyond a specified limit are monitored by the government of India through its various agencies. Income tax department matches the specified high value financial transactions with the data provided by the taxpayer in their income tax return.

Therefore, you must include all high value financial transactions to your income tax return while preparing to calculate your tax liability. If you fail to report or your reported income does not match with the financial transactions reported, then you may get notice from the authorities.

We all submit our taxable income details to the income tax department by filing our income tax return. The deadline to file income tax return for the financial year 2023-24 (assessment year 2024-25) for an individual is 31^st July 2024.

For the financial year 2022-23 (assessment year 2023-24), the due date for income tax return filing was 31^st July 2023. If you haven’t filed, then you can still file your income tax return for the financial year 2022-23 (assessment year 2023-24) on or before 31^st December 2023 by paying late filing fee.

It’s important that you mention all high value transactions if required while filing your income tax return.

These high value transactions includes bank deposits, mutual fund investments, trading in stock market, real-estate investments, crypto buying and selling and

All banks, recognized stock exchanges, trustees of mutual funds, registrar, sub-registrars, postmaster general and certain other specified institutions are required to report specified financial transactions registered or recorded by them during the financial year to the income tax authority.

Which high-value transactions are reported?

As per section 285BA of the income tax act, 1961, following higher value financial transactions are required to report to the income tax department by filing specified forms on or before 31^st May of the following financial year. Which means for the financial year 2023-24 (assessment year 2024-25), the due date of filing is 31^st May 2024.

Here is a list of high value transactions which are reported to the income tax department;

• Purchase of bank drafts/ pay orders/banker’s cheque of an amount aggregating to 10, 00,000 rupees or more
• Cash paid aggregating to 10 lakhs rupees or more to purchase pre-paid instruments issued by RBI
• Savings account deposits exceeding 10 lakh rupees.
• Current bank account deposits exceeding 50 lakh rupees.
• Cash deposits in FD bank account exceeding 10 lakh rupees.
• Credit card bill payments above 1 lakh rupees in cash and settlements above 10 lakh rupees.
• Sale of foreign currency amounting to 10 lakh rupees or more
• Sale or purchase of any immovable property exceeding ₹30 lakh.

In addition to the above high value financial transactions, the income tax department also tracks Capital gains on transfer of listed securities or units of Mutual Funds, Dividend and interest income for the financial year.

You can find all these high value financial transactions reported to the income tax department in your Annual information Statement (AIS) for a financial year. AIS provides details of all these financial transactions received by the income tax department from various sources irrespective of whether tax has been deducted on such income or not.

Now let us discuss major high value financial transactions that get reported to the income tax department by various institutions and which must be taken care while filing your income tax return.

Credit card transactions

When you pay your credit card bill in cash for an amount of 1, 00,000 rupees or more it gets reported to the income tax department by the institution issuing the credit card.

In case of any other mode of settlement such as cheque, bank transfer, the limit is 10, 00,000.

Which means, when you transfer money from your bank account to a credit card Company for payment of credit card bill, then it gets reported when the bill amount is 10, 00,000 or more.

You may get notice of the income tax department if your credit card expenses are disproportionate to the returned income.

In case you are using your credit card for a company’s expenses such as foreign travel, ticket booking, then you need to make sure that you have proper documentary evidence to prove it.

Sometimes many individuals lend their credit card to friends and relatives to buy mobile phones or to use for other transactions and then are reimbursed for the amount spent. These types of transactions must be avoided if it’s beyond a limit or else you might get a notice for such high value credit card transactions.

Transactions in saving and current bank account

Banks are required to report cash deposits and withdrawals if it exceeds a certain limit.

Every bank and post master general is required to report all cash deposits aggregating to 10,00,000 rupees or more in a financial year in one or more savings of a person.

For current accounts this limit is 50, 00,000. In current account cash withdrawals are also reported.

Banks are also required to report all new term deposits of 10, 00,000 rupees or more in a financial year. Renewal term deposits are excluded.

Your reported income must match with the cash deposits, withdrawals and new term deposits. Or else you may receive a tax notice.

Property transactions

The registrar or sub-registrar where you register your immovable property’s deed reports the details of buyer and the seller of the property to the income tax department when the transaction is 30,00,000 rupees or more.

If buying and selling property is your business, then it’s fine as your income tax return must be reflecting it. In other cases, the taxpayer must include such transactions as it will be cross verified by the income tax department.

Foreign currency, Share and mutual fund transactions

Every company should report if they receive 10, 00,000 rupees or more from their shareholders in a financial year for acquiring their shares, mutual funds and bonds.

An amount of 10, 00,000 rupees or more received in a financial year from the sale of foreign currency gets reported to the income tax department.

Dividend, Interest and Capital gains on listed securities or Mutual Funds

Interest income gets reported by banks, post offices and NBFCs to the income tax department. While filing your income tax return, you should make sure that it’s included.

Dividend income is reported by the company.

Short term and long term capital gains are reported by the depositories, stock exchanges etc.

Many of us know these incomes at the end of the financial year. Most of the time these incomes are not tax deducted. Therefore, you should make sure that you keep track of all these incomes and include it in your income tax return. If tax is to be paid, make sure you pay it in advance to avoid penal interest.

You can find all these high value financial transactions reported in your AIS and form 26AS. Annual information statement (AIS) can be accessed from your login at income tax e-filing portal.

Following table shows the nature and value of the financial transactions to be reported and the specified person who needs to report it to the income tax department.

In addition to the above list, The CBDT, vide Income-tax (4th Amendment) Rules, 2021, has enhanced the scope of nature of transactions to be reported under Statement of Financial Transaction (SFT) as per Rule 114E. Now, following specified Financial Transactions are also reported for the purpose of pre-filling the return of income.

This list shows what are the transactions reported and who is the reporting person.