How does Income Tax dept track high value transactions?

Have you ever wondered how the Income tax department finds individuals who engage in high-value transactions?

The IT department has come out with a "Statement of financial transaction or reportable account" which was previously known as Annual Information Return or AIR, to keep an eye on high value transactions.

Let us understand in detail:

What is AIR (Annual Information Return)?

As per section 285BA of the Income Tax Act, it has been made mandatory for the “specified persons/entities” to report transactions prescribed under rule 114E of the income tax act. These specified entities are also called Annual Information Return Filers and all the reported high-value transactions are captured in the Annual Information Return of a taxpayer.

Why is AIR necessary when we already quote PAN in all our major financial transactions?

These days, it is almost mandatory to quote PAN across most financial transactions. Submitting a copy of the PAN was made mandatory with the objective to keep a check on tax evasion and black money. In spite of quoting PAN in most transactions, It may not be necessary that every high value transactions was scanned by the IT department, which is why AIR process was brought in, to track high value transactions.

Who are these specified entities i.e. Annual Information Return filers?

Following are the “Specified Entities” who are liable to file AIR:

► The prescribed person in the case of an office of government 
► Registrar or Sub-Registrar appointed under the Registration Act
► The Post Master General 
►The registering authority empowered to register motor vehicles as per Motor Vehicles Act
► An officer of the Reserve Bank of India, Banking Company & Issuer of a Credit Card
► The recognised stock exchange & Trustee of a Mutual Fund
► A prescribed reporting financial institutions

What is the nature and value of transactions reported under AIR?

Cash Deposits (aggregate) of Rs 10 lakh or more in a financial year in your savings bank account: It means that your cash deposit of Rs 10 lakh whether in one go or at multiple point of times during the year will be reported to the government; however this reporting does not include the deposits made in your current or fixed deposit account.

Time Deposit of more than Rs 10 lakh: If you make time deposits i.e. FDs aggregating to Rs 10 lakh or more during a financial year, the same will be reported in AIR. 

Credit Card payment of Rs 10 lakh or and Rs 1 lakh in cash in the year:  So if your total credit card bill during the year exceeds Rs 10 lakh then the same will be reported to the department. And from April 1, 2016, if you have paid more than Rs 1 lakh towards your credit card bill in cash, it would be reported in your AIR.

For example, your credit card bill in FY17 is Rs 3 Lakh. Now if you make a cash payment of Rs 2.5 lakh in and the remaining Rs 50,000 via net banking, now though your total credit card bill is less than Rs 10 lakh, it will be reported in your AIR because the payment towards the bill in cash exceeded the Rs 1 lakh limit.

And consider this, if your total pending credit card bill was Rs 9 lakh and if you pay the entire amount by cheque, or netbanking gateway, then in this scenario, the payment transaction won't be reported in AIR because the it is less than Rs 10 lakh.

Investment in mutual funds or bonds or debentures for Rs 10 lakh or more in a financial year:  If you invest Rs 10 lakh or more in a particular financial year in mutual funds, bonds or debentures, it would be reported in AIR.

Purchase of Shares: Your purchase of shares of a company through it’s public or rights' issue for Rs 10 lakh or more will be reported in AIR.

Purchase or sale of immovable property: Your property purchase of Rs 30 lakh or more will be reported. This includes all types of property like land, building, plot, commercial or residential. This holds true even in the case of joint property, which means that the said Rs 30 lakh limit won't be split because the limit is prescribed on the basis of property value and not ownership pattern. So, if you happen to buy a property along with your spouse for Rs 30 lakh, it will be reported in AIR.

Purchase of foreign currency or travellers' card: Any receipt of foreign currency which includes the credit of foreign currency to your foreign exchange card or spending such currency via your debit card, credit card or via travellers cheque or any other instrument exceeding in aggregate for Rs 10 lakh in a financial year will also be reported. 

Cash purchase of Rs 2 lakh or more: Any cash purchases which exceeds Rs 2 lakh, for goods or services of any nature and other than what has been specified in the above points will be reported in AIR.

Cash deposited during Demonetization: Cash deposits between November 9 to December 30, 2016, will be reported if the aggregate cash deposit exceeds Rs 2.5 lakh or more in any of your bank accounts other than the current account. The current account limit is Rs 12.5 lakh or more.

What is the use of AIR for you?

You may be wondering about the use of AIR since you don't have to file it. What you need to do is to be aware of the information as pertains to your AIR and reconcile the details reported there with your Form 26AS. If you find anything amiss, then you should take immediate action to bring it to the notice of the income tax department.