With the Finance Bill passed by the Lok Sabha, the dust may have settled on most budget announcements. But there are few things worth a deeper look. Every year, in the recent past, the Budget has been incrementally taking steps to ensure that high-value transactions don’t escape the taxman’s notice. This year is no different. Be it TDS (tax deduction at source) on cash transactions above a certain limit or the bringing under the TDS netpayments to contractors or professionals, the interchangeability of PAN (permanent account nmber) and Aadhaar or the addition to list of persons expected to file tax returns, the first Budget of the new government has continued to take steps to widen the tax base. It would help if taxpayers pay attention to all what’s on the government’s radar and keep their dealings clean.
Cash is not king
Withdrawing cash big time for your expenses and payments? To keep tabs on high-value cash withdrawals, the Budget has empowered banks, including co-operative banks and post offices, to levy a 2 per cent TDS on withdrawals in excess of ₹1 crore from September 1, 2019. The ₹1 crore limit is not for a single withdrawal from an account, but for an aggregate of withdrawals across branches of a bank during a year.
Heaving a sigh of relief that ₹1 crore is a far cry and you are not under the lens? Well, it may be so this time, but there are checks on cash transactions at various thresholds from as little as ₹2,000. So, if you are fond of charity and want to reduce your tax outgo this way by claiming deduction under Sec 80G, donations over ₹2,000 in cash don’t qualify for deduction. Making payment of over ₹10,000 in cash?
Well, it may probably be ok if you are paying your domestic help’s salary but not if you are running a business. Here, if you incur a cash expense (single or aggregate) of ₹10,000 in a day, you cannot claim this expenditure as deduction in the calculation of your business income for tax purposes. Similarly, if you have spent anything over ₹10,000 in cash in a day (single or aggregate) for acquiring an asset, such amount will be ignored for the calculation of the cost of the asset.
With the introduction of ₹2,000 notes, carrying ₹20,000 or more has become light on the pocket or the purse. But while you may be tempted to spend even such sums in cash, the tax department doesn’t take cash payments over ₹20,000 lightly, especially if it is of the nature of loans, deposits or in relation to an immovable property. Acceptance/repayment of loan or deposit or payment for a property over ₹20,000 (single or aggregate) is prohibited under the Income-Tax Act. Failure to comply with these provisions can attract a penalty equivalent to the amount paid or repaid.
Recent budgets have also tightened the noose. Budget 2017 barred receipt of ₹2 lakh or more in cash in aggregate from a person in a single day or in respect of a single transaction or transactions relating to one event or occasion. A penalty equal to the amount involved is charged for contravention. Further, to encourage digital transactions, Budget 2019 mandated that any business with turnover or gross receipts of ₹50 crore should provide facility for prescribed electronic modes of payment, failing which a sum of ₹5,000 will be charged as penalty for every day when such failure occurs.
No PAN? No escape
Ensuring quoting of PAN is another way of keeping track of high-value transactions by the tax department. The need to disclose PAN is triggered at various thresholds in 18 different types of transactions. Apart from compulsory disclosure when buying vehicles other than two-wheelers, opening a bank account or a demat account or applying for debit or credit card, various transactions ranging from ₹50,000 to over ₹10 lakh require PAN. These include purchase of mutual fund units, bonds or debentures over ₹50,000, cash payments of ₹50,000 for hotel bills or towards foreign trips at any one time, any sale or purchase of goods or service exceeding ₹2 lakh or sale or purchase of immovable property valued over ₹10 lakh.
However, since PAN is required to be held only by certain persons such as those whose income exceeds the exemption limit or those required by law to file returns, etc, transactions by others tend to go below the radar. To be fair, you will be asked to fill up Form 60 if you don’t have a PAN. But it’s not easy to keep track of Form 60 submissions across the country to crackdown on shady transactions.
Budget 2019 fills the gap by mandating use of Aadhaar from September 1, 2019, wherever PAN is not available. Besides, it mandates that you will also have to apply and obtain PAN alongside. Also, since Aadhaar and PAN anyway need to be linked by September 30, 2019, the Budget has declared that PAN and Aadhaar can now be interchangeably used. This move implies that entering into high-value transactions and not leaving a trail will not be easy any longer.
Scope of AIR widened
Apart from checks through discouraging cash transactions and asking for PAN, your money moves also need to be watched and reported to the tax department by certain persons/institutions you engage with. For instance, if you make an aggregate investment of ₹10 lakh and above in a financial year in shares or in one or more mutual fund schemes (excluding transfer) or in bonds or debentures and time deposits (excluding renewals), the institutions where you have made these investments will share this information with the government through a ‘Statement of Financial Transaction’ also called the ‘Annual Information Return’ or AIR.
Ditto with credit card bills and purchase of foreign currency in all forms over ₹10 lakh; payments of ₹10 lakh and above in cash (aggregate in a financial year) for purchase of drafts or pay orders are also not spared. If you buy or sell any immovable property for over ₹30 lakh or if the property is valued at ₹30 lakh and above, this will also be reported by the appropriate authority in their AIR filings. Similarly, cash deposits or withdrawals, aggregating over ₹50 lakh into/from a current account in a financial year, will also be reported by your bank to the IT department.
Now, what has changed? To enable pre-filling of IT return forms — another measure that was announced in the Budget — the scope of reporting your transactions to the government by various entities has widened. Earlier, only transactions over ₹50,000 need to be reported. To enable pre-filling of returns, this floor limit has been lifted so that even smaller amounts can be captured. This means that you may no longer be able to get away without disclosing certain incomes in your ITR.
For instance, if you earned interest from a recurring deposit which is not subject to TDS, you could probably have got away without disclosing it in your return earlier. Now, with pre-filling enabled and the floor limit of ₹50,000 also lifted, the system could automatically capture this interest income.
TDS/TCS trail
Successive budgets have also broadened TDS/TCS (tax collection at source) provisions as a means to keep track of high-value transactions. In Budget 2017, for instance, TDS on payment of rent over ₹50,000 a month was introduced. This time, apart from TDS on cash transactions mentioned earlier, TDS has also been introduced in payments made by individuals or HUFs to contractors or professionals. So, from September 1, 2019, TDS at the rate of 5 per cent should be charged by an individual or a HUF, if they pay over ₹50 lakh a year for contractual work or professional fee.
Vigilance has also been stepped up by imposing a TCS for big-ticket transactions. For instance, consideration in excess of ₹10 lakh received on sale of motor vehicle is charged a 1 per cent TCS from June 1, 2016.
IT returns more granular
Budget 2019 has also brought more persons under the tax filing net to keep a close watch on their financial dealings. So, in a financial year, if a person has deposited an amount exceeding ₹1 crore (either in a single or through multiple transactions) in one or more current account maintained with a bank or has spent an amount or aggregate of amounts exceeding ₹2 lakh for himself or any other person for travel to a foreign country or has incurred expenditure of an amount or aggregate of amounts exceeding ₹1 lakh towards consumption of electricity, he is required to file his return of income from April 1, 2020 though his total income is below the taxable limit. A similar provision popularly called the ‘one by six’ criteria, wherein assessees were required to file returns if they fulfilled any one of the six conditions mentioned then, was in vogue in the early 2000s, but removed later on.
Apart from the Budget moves each year, the ITR forms too have been seeking more disclosures especially on capital gains, foreign income and on asset and liability details of the high income group. Additional requirements each year has seen ITR 2 — which captures these details of individuals — bulge from 13 pages in 2016 to 16 in 2017, 17 in 2018 and 21 pages in 2019.
With the government closing in, it is always better to be safe than sorry. Who knows, as suggested by the Economic Survey released earlier this month, roads, trains and important buildings could be named after you if you are an honest taxpayer!
Helping us breathe easy
While on the one hand, the tax department has been steeping up its monitoring of your financial activities, on the other, it has also been making compliance easy. For one, a host of services is now available online. You just need to log on to http://www.incometaxindia.gov.in/Pages/tax-services.aspx . A list of services provided to all assessees, including individuals, is put up in this page along with the link to the relevant website to be accessed, helpline numbers and e-mail IDs for correspondence.
An online guide to the procedure/process for requesting and completing each of these services is given alongside. So, if you don’t have a PAN but need to have one as per the law, this page will tell you how and where to apply online, where to keep track of your application as well as where to go for your PAN grievances. Linking Aadhaar with your PAN can also be done online on the tax department’s e- filing website www.incometaxindiaefiling.gov.in .
Similarly, while the department has been bringing more and more transactions under the TDS net, it has also relaxed the TDS rules for small tax payers. In Budget 2016, for instance, the limit for TDS applicable on withdrawals from the employee provident fund (EPF) within a specified period was moved up from ₹30,000 to ₹50,000.
TDS rates were also brought down to 1 per cent from 2 per cent for receipts from a life insurance company, and to 10 per cent from the earlier 20 per cent in the case of NSS (national savings scheme) deposits. In Budget 2018, senior citizens got the benefit of a higher TDS limit on interest income, when it was moved up from ₹10,000 to ₹50,000. The interim budget of 2019 extended this benefit to other tax payers as well, by increasing the threshold limit for TDS on bank deposits and post-office deposits from ₹10,000 to ₹40,000 a year.
For small taxpayers, these changes have eliminated the hassle of their being subjected to TDS at the time of the transaction, only to be entitled for a refund later on. It also helps prevent the taxpayer’s money from being unnecessarily locked up in the department’s hands until the time the refund is processed.
Thirdly, if you haven’t kept track of your high-value transactions, you can easily view them online. Form 26AS captures your AIR transactions reported by various institutions in one place. All your TDS/TCS cuts are also visible here. You can view your Form 26AS by logging into your net banking account or by logging into your account in the e-filing portal.