High-value transactions to be used to identify tax defaulters

The proposed addition to the list of high-valued transactions would be used by tax department to identify those who avoid filing income-tax returns or underreport income even if they file returns, finance ministry sources have said. However, they clarified that the onus of reporting such transaction won’t be on the taxpayers but it would be reported to IT department by third parties.

These transactions will include purchase of white goods, jewellery, paintings over Rs 1 lakh, payment of educational fees/donations above Rs 1 lakh per annum, payment to hotels above Rs 20,000, life insurance premium payment above Rs 50,000 and electricity consumption above Rs 1 lakh per annum.  These transactions would be part of specified financial transactions and would appear in a taxpayer’s form 26A.

Sources said that it was imperative that IT department have a broader SFT report by third party about those persons who undertake high value transactions but still do not pay income-tax. For example, a person who is paying school fee or donation of say Rs 5 lakh per annum and still does not file income-tax return by claiming that his income is not taxable is actually trying to dodge the income-tax system. Similarly, a person who has made purchases of luxury items or spent sizeable amount for hotel bills are potential taxpayers and should file their income-tax return.

“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,” an official added. Earlier this year, the government had already made it mandatory for those paying electricity bill of over Rs 1 lakh in a year and expense of over Rs 2 lakh in foreign travel to file returns.