The Income Tax Department in India is intensifying efforts to ensure compliance among various entities that have failed to report high-value financial transactions for the financial years 2023-24 and 2024-25. This initiative highlights the department’s commitment to addressing non-compliance, particularly concerning the filing of Statements of Financial Transactions (SFT). Utilizing advanced artificial intelligence and data analytics, the department aims to identify inconsistencies between reported income and actual financial activity.
Background and Cause of the Crackdown
Data Analysis
The Directorate of Systems has flagged numerous entities that either failed to file reports or submitted incomplete information related to high-value transactions. By employing AI tools, the department monitors taxpayer behavior, tracking online activity and flagging significant financial transactions.
Voluntary Compliance Campaign
Previously, the department launched e-campaigns aimed at encouraging taxpayers to validate their financial transactions voluntarily. The current crackdown acts as a follow-up for entities that did not respond or correct their non-compliance in response to these campaigns.
Transactions Under Scrutiny
The enforcement actions focus on various types of high-value transactions, including:
- Cash deposits in savings accounts exceeding ₹10 lakh annually.
- Cash deposits or withdrawals in current accounts surpassing ₹50 lakh annually.
- The purchase or sale of immovable property valued at ₹30 lakh or more.
- High-value purchases of vehicles, gold, and cryptocurrency.
- Credit card payments and luxury hotel stays exceeding specified limits.
- Cash investments in mutual funds, debentures, and bonds over ₹10 lakh.
- Large foreign currency transactions exceeding ₹10 lakh.
Consequences for Non-Compliance
Entities and individuals failing to report these transactions may face severe penalties and scrutiny:
Notices and Scrutiny
The Income Tax Department is actively issuing notices to non-compliant entities, seeking clarification for discrepancies. A mismatch between reported income in tax returns and the transactions listed in the Annual Information Statement (AIS) can lead to further scrutiny.
Penalty for Non-Reporting
Entities that neglect to file the SFT could incur a penalty of ₹500 per day during the period of non-compliance. If a notice has already been issued by the department, this penalty may escalate to ₹1,000 per day.
Penalty for Under-Reporting Income
If scrutiny reveals under-reported or misreported income related to high-value transactions, penalties may range from 50% to 200% of the tax owed on the concealed income.
Imprisonment
In severe cases of willful tax evasion involving substantial sums of money, legal provisions may warrant imprisonment for up to seven years, along with fines.
Inoperative PAN
Effective December 31, 2025, Permanent Account Numbers (PANs) that are not linked with Aadhaar will be rendered inoperative, complicating financial transactions and potentially leading to higher TDS deductions.
What Taxpayers Should Do
To promote transparency and compliance, the department encourages taxpayers to:
- Verify AIS: Regularly check the Annual Information Statement (AIS) and Form 26AS on the e-filing portal to ensure high-value transactions are accurately represented.
- Respond to E-Campaigns: Taxpayers receiving e-campaign emails or SMS alerts regarding high-value transactions should log in to the compliance portal and provide necessary feedback.
- Accurate Reporting: Properly report all high-value transactions in their Income Tax Return (ITR), supported by appropriate documentation to avoid notices and penalties.
Measures for Enforcement
The Income Tax Department employs several tools to enforce reporting requirements and detect non-compliance:
- Annual Information Statement (AIS): Collects a consolidated view of all financial information from various sources.
- Upgraded Form 26AS: Displays details of Specified Financial Transactions (SFT).
- TDS on Cash Withdrawals: Applies tax at source for high-value cash withdrawals.
- Mandatory ITR Filing: Requires individuals with high-value transactions to file ITR, even if their total income is below the taxable limit.
- Third-Party Information: Gathers details from financial institutions, registrars, and other entities to monitor transactions.
In conclusion, as the Income Tax Department ramps up its efforts to enforce compliance regarding high-value financial transactions, taxpayers are urged to be proactive in ensuring transparent and accurate reporting to avoid penalties and scrutiny.
