Reporting high value transactions to Income Tax Department

July 03, 2023

Introduction

High-value transactions may not be uncommon in your business or personal dealings but it is very important to report them properly and promptly to concerned authorities especially the Income Tax Department. These high-value transactions definitely have the potential to gain the attention of the authorities, that said to avoid any future scrutinies or to be better prepared in case of a scrutiny prompt reporting of such transactions proves helpful.

What are high-value transactions?

There are several factors that help determine whether transactions can be classified as high-value. Also, the threshold for the amount of the transaction may differ based on how the transaction was executed. If the transactions were executed through a bank account or a credit card then the following can be classified as high-value transactions.

  • If cash deposits or withdrawals of ₹50 lakhs or more are made through a current account.
  • If transactions are from savings accounts, then only cash deposits greater than ₹10 lakhs are considered high-value.
  • Fixed deposits are also considered high-value when the monetary value is ₹10 lakhs or more.
  • Demand drafts of value greater than ₹10 lakhs paid for in cash are high-value.
  • Cash deposits of greater than ₹1 lakh for payment of credit card or purchases of ₹10 lakhs or more are high-value.

Calculating high-value transactions

The thresholds stated above are quite large and not many transactions may occur in your personal or business accounts that have such large amounts in a single transaction. However, high-value transactions don't have to occur in a single instance. In fact, there are a few factors that are utilized to determine high-value transactions. These factors are:

  • To meet or cross the threshold of the high-value transaction, an aggregate of all transactions of the same nature within a fiscal year is used. For example, all cash deposits in various current accounts of an entity in a given financial year add up to ₹50 lakhs or more, then they are together considered high-value transactions.
  • These transactions of the same nature are also summed across various banks of the same nature that are associated with the individual or an entity. Considering the example in the previous point, if the various current accounts are with various banks then the transactions of the same nature i.e. all cash deposits from all those banks shall be added to determine if the transactions are considered high-value.

Another point in properly reporting high-value transactions is the reflection of these transactions (SFT or Statement of Financial Transaction) in part E of the 26AS form of Income Tax Department.

Conclusion

High-value transactions and misreporting financial transactions increase the chances of scrutiny and departmental notice. Discipline in reporting financial activity and keeping records of them can help one avoid anxiety and stress in the future.



Note: Above details are meant for generalized situations and shall not be used as a legal basis for any particular situation readers may have. We do provide tax consultations for specific scenarios and can be reached through our contact us form.



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