High-Value Transactions Tax Reporting

The India Income Tax Department has actually strengthened its monitoring system to track taxpayers' financial activity. If you have received a high value transaction income tax notice without solicitation, the chances are that it is because of this initiative. Financial transactions of high value are now systematically monitored, and suspicious differences can lead to compliance notices and even penalties.

In this article, we discuss everything you need to know about high value transactions, the government's monitoring system, and how to react to notices through the Income Tax Compliance Portal.

What Are High-Value Transactions?

A high-value transaction refers to any substantial financial transaction that exceeds limits set by the Income Tax Department. The transactions are tracked to ensure that taxpayers declare their income and financial transactions appropriately.

Sr. No.	Transaction	Threshold (Rs)	Which authority should report?
1	Cash payment for purchasing bank draft, pay order, banker’s cheque or prepaid RBI instruments	10,00,000	Banks or co-operative society need to disclose a transaction if the amount deposited exceeds the threshold to the Director of Income Tax by filing Form 61A
2	Cash deposits in a savings bank account	10,00,000	1. Banks 2. Co-operative society  3. Post master general
3	Cash deposit or withdrawal from a current account	50,00,000	Banks or co-operative society
4	Sale or purchase of an immovable property	30,00,000	The Property Registrar/Sub-registrar must report a transaction exceeding the threshold via Form 61A.
5	Investments in shares, mutual funds, debentures and bonds in cash. If an amount is transferred from one scheme to another, then reporting is not required.	10,00,000	1. Company issuing Shares, Debentures, Bonds 2. Mutual Fund Trustee
6	Payment of credit card bill in cash	1,00,000	Banks or co-operative society
7	Payment of credit card bill other than through cash	10,00,000	Banks or co-operative society
8	1. Sale of foreign currency 2. Crediting FOREX card 3. Spending in foreign currency through a debit or a credit card or through traveler’s cheque or any other instrument	10,00,000	1. Sale of foreign currency 2. Crediting FOREX card 3. Spending in foreign currency through a debit or a credit card or through traveler’s cheque or any other instrument 10,00,000 Authorised Person under Foreign Exchange Management Act, 1999
9	Cash deposits in the fixed deposit or recurring deposit account	10,00,000	1. Bank  2. Co-operative society 3. Nidhi Company 4. NBFC

Most commonly made high value transactions are:

• Cash deposits above ₹10 lakh in savings bank accounts

• Transactions of over ₹1 lakh through cash or ₹10 lakh by any means during a year through credit cards

• Sale or purchase of immovable property above ₹30 lakh

• Investments over ₹10 lakh in mutual fund, bonds, or debentures

• Forex expenses in foreign travel exceeding ₹2 lakh

• Purchase of jewelry or other high value luxury goods of above ₹2 lakh in cash

These transactions are stated under the Statement of Financial Transactions (SFT) by banks, mutual funds, registrars, and other financial institutions.

How IT Department Trace High-Value Transactions

The IT Department traces financial transactions through a number of tools. Most significant data sources are:

1. Form 26AS

Form 26AS is an integrated tax statement comprising details of TDS, TCS, advance tax, and high value transactions reported by third parties under SFT provisions.

2. AIS (Annual Information Statement)

AIS provides a total picture of the financial activity of a taxpayer, i.e., mutual fund investment, sale of shares, receipt of interest, etc.

3. SFT Reporting Mechanism

Banks, post offices, property registrars, and NBFCs need to report high value transactions directly to the IT Department. These are cross-matched with tax returns.

Where there is mismatch-i.e., short reporting of income or unreported cash deposits-a high value transaction income tax notice can be served.

Action to Be Taken if Form 26AS Highlights SFT Transactions

If you find entries in SFT Transactions in your AIS or Form 26AS, it means your financial transaction has been highlighted as a high value transaction.

Following is what you can do:

• Verify the transactions: Make sure the amount and nature of transactions mentioned are the same according to your records.

• Verify ITR: Ensure your Income Tax Return reflects the correct sources of income or asset purchases which are in accordance with the transactions.

• Have Documents Ready: Get bank statements, property documents, investment proofs, or other allied documents.

If the transactions are legitimate and you have given correct information, nothing further may be requested. Unmatched or unexplained entries may lead to a high value transaction notice from income tax departments.

Launch of E-Campaign

With the aim of promoting voluntary compliance and reducing enforcement, the IT Department launched an e-Campaign for Voluntary Compliance of Income Tax in 2020. The campaign is being currently conducted and covers financial years starting from 2018--19.

E-Campaign Goal:

• Educate taxpayers about disparities or mismatches in reported income

• Offer an opportunity to rectify returns or clarify transactions voluntarily with high amounts

• Reduce scrutiny cases through participative taxpayer activity

The e-campaign primarily targets non-filers or cases where there is a wide disparity between income declared and information collated through SFT and AIS.

Who Receives Email/SMS of E-Campaign from the Income Tax Department?

If you received a high value transactions income tax sms, you may be part of the target audience of the e-campaign. The IT Department sends:

• Emails to registered e-mail IDs linked to PAN

• Official income tax message for high value transaction like from numbers ITDEFL or VM-ITDEFL

These alerts will usually inform you that high value transactions have been detected which do not match the reported income in your ITR or that no ITR is reported.

You can be alerted if:

• You received whopping cash deposits but didn't file an ITR

• Your interest, foreign travel expenses, or capital gains appear to be unreported

• You have accepted TDS but not reported corresponding income

In such cases, it becomes necessary to take action at the proper time in order to avoid notices or penalties.

How to Respond to E-Campaign Notice Online and How to File Response?

If you're covered under e-campaign or have received high value transaction notice from income tax, do the following to respond through the Income Tax Compliance Portal:

Step-by-Step Instructions:

1. Visit compliance.insight.gov.in

2. Login with PAN (which is linked to your e-filing account)

3. Move to the 'e-Campaign' section

4. Verify the list of high value transactions alerted

5. Click 'Provide Feedback' for all transactions

Response Types:

• Transaction is Correct: You validated and reported it in your ITR

• Transaction is Not Correct: Erroneously reported or misallocated

• Transaction is Not Related to Me: Incorrect PAN quoted

• Transaction is Duplicated: Already accounted elsewhere

• Others: Enter short description

Post-Response Action:

• If the discrepancy was genuine, you can file a revised return within the given time.

• If it is all accurate, nothing further needs to be done.

• If left undone, you might be audited or get penalty notices.

Importance of Return of Response in the Compliance Portal

Failure to respond to an income tax compliance portal notice may have severe penalties.

Why It Matters:

1. Stay Free from Scrutiny or Audit: A clean response responds to the Department and reduces the chances of an extensive investigation.

2. Escape Penalties: Underreporting or non-reporting of income may attract a high value transactions income tax penalty under Section 270A (50%--200% of the tax shortfall).

3. Be Transparent: True and prompt disclosure keeps your taxpayer record clear.

4. Opportunity to Correct Mistakes: The portal offers a chance to amend returns or dispel misconceptions without heavy penalties.

The Income Tax Compliance Portal is designed to enable non-intrusive verification. Using it properly is not only a legal obligation-it's in your best interest.

Monitoring of Financial Transactions

With the IT Department's digitized ecosystem and third-party reporting tools, high value transactions are now under regular watch. Your financial footprint and transaction data as an employee, business owner or investor will likely be matched with your tax profile.

If you received a high-value transaction income tax notice, an income tax SMS, or a notification from the income tax compliance portal, it is not necessarily a sign of something wrong. But it is certainly a call to action and record. By learning about your financial transactions, being compliant, and answering e-campaign notices in the right way, you can avoid penalties and have a seamless tax experience.