How IT department tracks your High Value Transactions?

Have you ever wondered that how the Income tax department comes to know about your high-value and cash transactions? So, to keep an eye on your high value transactions, the IT department has come out with a “Statement of financial transaction or reportable account which was previously known as AIR i.e. ‘Annual Information Return’. Let us understand in detail:

What is AIR (Annual Information Return)?

As per section 285BA of the income tax act, it has been made mandatory for the “specified persons/entities” to report transactions prescribed under rule 114E of the income tax act. These specified entities are also called as Annual Information Return Filers and all the reported high-value transactions are captured in this Annual Information Return of a taxpayer.

What are the nature & value of Cash Transactions as reported under AIR?

  1. Cash Deposits (Aggregate) of Rs. 10 lakh or more in a financial year in your savings bank account: It means that your cash deposit of Rs. 10 lakh whether in one go or at multiple point of times during the year will be reported to the government; however this reporting does not include the deposits as made in your current account.
  2. Time Deposit of more than Rs. 10 lakh: If you make time deposits i.e. FDs aggregating to Rs. 10 lakh or more during a financial year, the same will be reported in AIR.
  3. Credit Card payment of Rs 10 lakh or more & 1 lakh in cash during the year: So if your total credit card bill during the year exceeds Rs. 10 lakh then the same will be reported to the department. And from 1st April 2016, if you have paid more than Rs. 1 lakh towards your credit card bill in cash then also it will be reported in your AIR. Let me give you an example, say your credit card bill during the financial year 2016-17 is Rs. 3 lakh and out of this total bill of Rs. 3 lakh, you make the payment of Rs 2.50 lakh in cash towards this credit card bill payment and the remaining Rs. 50k via net banking, now even though your total credit card bill is less than Rs. 10 lakh but it will be compulsory reported in your AIR because the payment towards the bill was made in cash which exceeds Rs. 1 lakh. And consider this, say rather than the previous example of Rs. 3 lakh, your total pending credit card bill would have been Rs. 9 lakh and to clear off the dues, you made the entire payment of Rs. 9 lakh via a cheque or net banking gateway, then in this scenario, this transaction of Rs. 9 lakh will not be reported in the annual information return because the payment is less than Rs. 10 lakh and made in a mode other than cash.
  4. Cash purchase of Rs. 2 lakh or more: Any cash purchases which exceeds Rs. 2 lakh, for goods or services of any nature and other than what has been specified in the above points will be reported in AIR.

You do not need to press the panic button on your cash deposits unless the cash deposit is generated out of unlawful means and illegal transactions. Post demonetization, using cash and depositing the same has its own restrictions and as said you should not worry if the sources are justified and reported and the due taxes are paid off in time.

What should you do in case you have cash deposits with you?

  1. Know your Cash Position/Prepare Cash flow summary: Update your book of accounts immediately to know your cash position which means how much amount of cash balance out of your capital account has been generated. Though business person will understand this but salaried person is hardly aware about this and mostly have never prepared their Balance sheet for that matter. Time has come to prepare your “Cash Flow Statement” or “Cash Summery” or “Net Worth Statement” over the last few years. Apart from using your past income tax returns data, you also need to look at your cash withdrawals from ATMs or your Bank account to arrive at the cash flow summery. This exercise will help you to justify the cash available with you because many honest taxpayers are worrying unnecessarily and are pressing the panic button. But as I had mentioned earlier, if you have genuine cash savings lying with you, then why worry; all you need to do is to create a supporting documentary evidence for record purpose which can be used as an evidence to justify your cash deposit; just in case you happen to get any notice or enquiry from the tax department.
  2. Cash Deposit during demonetization: There were various news making the round that you should not deposit more than Rs. 2.50 lakh at one time or 10 lakh in a year (01/04/2016 to 31/03/2017) in your savings bank account as it may attract income tax notice and any unexplained or unmatched deposits of over above Rs 2.5 lakh during this 50-day window could attract income tax along with a 200% penalty in case of any income mismatch. So yes one who has black money lying with them has a reason to worry but why worry if you have genuine cash lying with you and the same had been declared in your tax returns as cash income and taxes have already been paid on the same and it perfectly matches your income tax returns. In this case, even higher amount of deposits will not be an issue except the fact that you may need to justify by submitting an evidence in case of an enquiry which may come at a later stage. So please do not misunderstand this news and take in a way that you cannot deposit your genuine cash beyond 2.50 lakhs and on doing so you may get 200% penalty, No; there will not be any penalty for genuine deposits which matches your returns, all you need to do is to create a summery as mentioned in the first point to work it as an evidence of your cash being genuine. Do not worry and just streamline your tax records right away, let people who have black money worry, not you.
The author can be contacted at jiwademg@yahoo.com