You are constantly under watch by Income Tax Department, 24 hours a day, 365 days a year through its most advanced Information Technology System of data collection at centralised data centers.
Not only high value bank transactions, foreign travels, purchase and sale of immovable property, credit card payments, cash deposits, hotel stay are tracked but even online purchases made through Flipkart, Amazon and other e-commerce portals or food ordered through Zomato or Swiggy is covered. Maintaining multiple bank accounts or using multiple credit cards does not mean that any transaction will slip notice of the Income Tax Department.
To appreciate this process, it is advisable for a taxpayer to know how the information is gathered and used to track tax evasion.
Connecting with PAN
Rule 114 (b) of Income Tax Rules, 1962 has made it compulsory to quote PAN. Right from opening a bank account to purchase of jewellery articles, quoting PAN is compulsory. Other such transactions where PAN is to be quoted are sale or purchase of motor vehicle, opening any bank account or applying for debit or credit card, opening a demat account for shares, payments to hotel or for foreign travel/currency more than Rs 50,000 in cash, investment in FDs, mutual funds, bonds more than Rs 50,000, sale or purchase of immovable property and any transactions more than Rs 2,00,000.
Transaction Reporting
The Annual Information Report (AIR)Under Section 285(BA) of Income Tax Act, 1961 it has been made mandatory for various regulatory authorities like registrar of immovable properties, motor vehicle registration department, postmaster general, stock exchanges, depositories etc to furnish an AIR of specified transaction entered into by them above Rs 50,000 regarding taking or accepting loan or deposit, investmentsmade, expenditure incurred, works contract, service contracts, purchase, sale or exchange of goods or properties and cash payments or receipts exceeding various limits.
Data from Tax Deductions at Source
Income Tax Act also requires that tax is to be deducted on income earned by every person. Under section 206AA of Income Tax Act, 1961 it is obligatory to furnish PAN number for all transactions where TDS is required to be made. This information in electronic format is stored in central database on regular basis. In certain cases, like purchase of high value cars, the seller is required to collect tax at source (TCS). Such deductor or collector is required to furnish TDS / TCS returnselectronically. On filing of such returns the data is reflected in Form 26AS of each PAN holder.
Where does this data go?
The information based on PAN, AIR, TDS and such other sources is processed by the Income Tax Department. The information about different transactions made by a person at different times, at different places and with different parties is collated and is available in a single database. Based on this ‘Individual Transaction Statement’ is prepared in respect of each person based on his PAN. These statements are electronically linked with the data of return / assessed income and tax payments of the taxpayer thereby making a 360-degree profile. In case, discrepancy is noticed in declaring the income on any account or any abnormality, automatic notice is triggered asking clarification for omission or for under-reporting.
What you should do?
It is therefore necessary that before filing your tax return, you make sure that you have reported income from each and every transaction made during the financial year to avoid penalties and prosecution by the tax department. Maintain proper documents and justification in the event any query is received from the income tax department.
Plea of ignorance will not help.
