A platform to honour honest taxpayers will strengthen compliance and broaden tax base

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Prime Minister Narendra Modi announced several tax measures on the eve of India’s Independence Day last week honouring the honest tax-paying citizen.

You will now have to file your income-tax (IT) return or pay higher percentage of tax deduction at source if you make certain spends in a year.

 If you spend Rs 20,000 a year as hotel expenses, property tax or even a health insurance premium, then your transactions would be reported. Similarly, if your annual rent exceeds Rs 40,000, life insurance premium is at least Rs 50,000 or electricity bills of Rs 1 lakh or more during a financial year, then you would be answerable to the taxman either via notices or through mandatory filing of returns.

 

The motive of the move is to check whether your spending is in line with the income you actually disclose in your return.

The Government has been shunting all doors to not only reduce the number of all cash transactions, but also increase the number of returns filed. The new move to collect spending data is another tool in the armoury to curb tax evasion.

Are transactions tracked currently?

The existing income tax rules mandate financial institutions such as banks, mutual fund houses, share registrar and transfer agents,sub-registrars to report high value transactions exceeding a specified limit during a financial year to the Income Tax Department.

So, a bank has to report details of every account holder who makes cash deposits of more than Rs 10 lakh in a year in a savings account or makes a payment of more than Rs 2 lakh from his credit card in a year. Similarly, asset management companies are required to report details of all the investors who invest more than Rs 2 lakh in a single mutual fund scheme. Now not only your investments and financial transactions, but also your specific spends will be tracked.

Do I have to inform the government of all my spends?

No. You do not have to go out of your way to inform the government or anyone, unless asked for in the tax return forms. Your purchases and expenses beyond a threshold will be mentioned in the returns of the hotel, electronic goods seller, artist, school, ceramic supplier or the Registrar in the case of property purchase, apart from banks, mutual fund houses, life and general insurance companies.

The details mapped to you would be reflected in your individual tax statement or Form 26AS. This form would be available on your income-tax website login.

The moment your spends in any of the high-spend categories mentioned, exceed the respective threshold limits, your Form 26AS would capture it. In other words, you have to file your tax returns.

Non-filing of ITR may have severe consequences for a person, who is otherwise required to file an ITR. Apart from attracting interest, late fee and penalty, wilful non-filing of ITR may also attract criminal prosecution.

The new move has been part of the government’s move to widen the tax net and get more and more people to file their income tax returns. A total of about 55 lakh or 80 per cent of the total returns are filed by people having an income of up to Rs 5 lakh, as per the Central Board of Direct Tax’s numbers as of July 31, 2020.

Only 5,066 individuals, who have an income above Rs 1 crore file returns, accounting for 0.73 per cent of the total individual tax returns.

Taxpayers would not need to mention their high-value transactions in their income tax returns, said officials in the know of the matter, but added that broadening the scope of reporting financial transactions by third parties had become vital since taxation was moving towards a faceless approach.

It’s clarified that only third parties would report high-value transactions to the income tax department as per the Income Tax Act. The information would be used to identify people who are not paying up due taxes, and not for examining affairs of honest taxpayers.

“The information will be used to identify those who are either not filing the returns or the income disclosed in the returns are not proportionate to the pattern of expenditure reported in the statement of financial transactions (SFTs),” the official said.

Data analytics and artificial intelligence will be used for this, instead of manual intervention.

Terming the method as most ‘non-intrusive’, the official said it would be used for identifying those who spend big money on business class air travel, foreign travel and expensive hotels or send their children to expensive schools, but do not pay taxes, claiming their income to be under Rs 2.5 lakh a year.

Prime Minister Narendra Modi flagged this very issue on Thursday, and asked people to pay their fair share of taxes, given that the country’s tax base was relatively small.

“Only 1.5 crore people pay taxes in a country of 130 crores,” he pointed out while launching a taxpayer’s charter and faceless assessment, aimed at improving transparency in tax administration.

“No doubt, the third-party reporting of high-value transactions made by such non-filers would allow the department to nudge such persons to file their returns and pay their due tax,” the official said.

All companies to file a one-time return of all outstanding receipts of money or loans from April 1, 2014, to March 31st, 2019

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With a spate of corporate irregularities coming to the fore, the Centre has decided to make disclosure norms more stringent. Corporate India is now required to submit details of transactions involving the receipt of money or loans taken by them, which are otherwise not considered deposits.

Every company other than Government company to which these rules apply, shall on or before the 29th day of June, of every year, file with the Registrar, a return in Form DPT–3 along with the fee as provided in Companies (Registration Offices and Fees) Rules, 2014 and furnish the information contained therein as on the 31st day of March of that year duly audited by the auditor of the company.

Form DPT–3 shall be used for filing return of deposit or particulars of transaction not considered as a deposit or both by every company other than Government company.

  1. Due Date of the Form DPT-3 – Return of Deposits: Every company shall on or before the 30th day of June, of every year, file a return of deposit with the Registrar and furnish the information contained therein as on the 31st day of March of that year duly audited by the auditor of the company.
  2. Due Date of the Form DPT-3 (ONE TIME): Form DPT-3 one time Due Date – all companies would be required to file Form DPT-3 one-time on or before the 29th June 2019
  3. DPT-3 Due Date (EVERY YEAR): Form DPT-3 every year on or before 30th June of the preceding year.

Auditor of Company prepare the financial statements which include the following (Audited Copy)

  • Balance sheet,
  • Profit and loss account
  • Income and expenditure account
  • Cash flow statement
  • Statement of changes in equity

Due Date: 29th May 2019

Penalty On the defaulting company
A fine of minimum Rs. 1 crore or twice the amount of deposit so accepted, whichever is lower, which may extend to Rs.10 crores; and

Every Officer who is in default: Imprisonment up to seven years and with a fine of not less than Rs. 25 lakh which may extend to Rs. 2 crores.

High-value transactions by doctors, lawyers under income tax lens

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Salaried individuals are not required to file the newly introduced statement of financial transactions (SFT).

Senior tax officials are reaching out to chartered accountants and CFOs to drive home the point that by May 31 business establishments, various financial institutions and professionals, including doctors, lawyers and architects, will have to report a slew of high-value transactions such as cash deposit, credit card payments, share sale, property deals, debentures and mutual fund units among others.

Salaried individuals are not required to file the newly introduced statement of financial transactions (SFT). Entities that will have to report are banks, professionals, fund houses, forex dealers, post office, nidhis, non-banking finance companies, property registrars, companies issuing bonds and debentures, and listed companies buying back shares from specific persons.

“Many are not fully aware of the new requirement. Under the modified rules, the earlier requirement of filing annual information return (AIR) has now been replaced by SFT. The changes have created new classes of first time filers who have to file SFT of specified transactions for FY 2016-17,” said Jai Raj Kajla, Director of Income Tax (Intelligence & Criminal Investigation) while addressing tax practitioners here on Friday.

The nature of transactions includes cash payment for purchase of demand drafts or pay orders of Rs 10 lakh or more in a year; cash payment of Rs 10 lakh or more for purchase of pre-paid RBI instruments, cash deposit or withdrawal of Rs 50 lakh or more from current account; one-time deposit of Rs 10 lakh or more with banks, nidhis, NBFCs and post offices; payment of Rs 1 lakh or more in cash and Rs 10 lakh or more by other mode against credit card bill issued to a person during the year; and property registrars for deals worth Rs 30 lakh or more.

Kajla and his colleagues met close to 300 tax practitioners and corporate CFOs to explain the new rules, which would require the reporting entity to register online with the tax office. SFTs have to be filed in separate form and not along with the regular Income tax returns.

“The Directorate is conducting workshops to address various categories of reporting entities like bullion dealers, stock brokers, and dealers of automobiles and luxury goods,” said Anu Krishna Aggarwal, Additional Director of Income Tax (I&CI).

As per the new requirements, apart from specific filers like banks which used to file similar AIR returns, SFT regulations would cover any person who is liable to audit under Section 44AB of the Income Tax Act, 1961. The particular section relates to audit of businesses and professions.

The purpose of the workshops was to spell out the rules to the chartered accountants who in turn can assist taxpayers in ensuring timely and accurate SFT compliance.

Laxman Singh Gurjar, Manpreet Singh Duggal, and Aastha Madhur – all deputy directors of Income Tax – and Vishnu Agarwal, chairman of the western India council of ICAI, participated in the discussions which also dealt with the finer points of compliance ..For instance, while reporting an entity will have to take into account all the accounts of the same nature maintained in respect of a person during a financial year; also, while attributing the entire value of the transactions to all the persons in cases where the account is maintained or transactions recorded in the name of more than one person.

Filing of inaccurate information will attract penalty of Rs 50,000.

Source: http://economictimes.indiatimes.com/articleshow/58651349.cms