The income tax department issued a circular on 12th March 2021 by inserting a new sub-rule 5A to collect information on various transactions from the specified reporting entities. These transactions include capital gains, dividend income and interest income earned by the investors.
But a similar rule already exists? So, what’s the new rule?
As per the current section 285BA of the Income Tax Act, many entities have to report certain specified financial transactions, i.e. ‘SFT’ of their clients. Specified entities like banks, NBFCs, post offices, credit card issuing companies, the company issuing bonds, shares or debentures, etc., have the onus to report the transactions.
The Income Tax Act has specified a list of such transactions, their nature and threshold beyond which the transacting entity has to report to the income tax department.
These specified financial transactions include transactions like cash deposit of more than Rs 50 lakh, cash payment or receipt of over Rs 10 lakh, credit card payment of more than Rs 10 lakh through digital mode or Rs 1 lakh by cash, etc., to name a few.
The new circular will further the scope of reporting by including the details of transactions relating to capital gains of listed securities or mutual fund units, dividend income and interest income earned. Please note that the circular does not specify any ceiling limit for reporting such transactions. The circular covered below mentioned transactions and the respective reporting authorities as mentioned below:
|Nature of transactions||Reporting Person|
|Capital gains on listed securities
Capital gains on mutual funds
|Recognised stock exchanges
Registrar and share transfer agents
Recognised clearing corporations
|Interest income||Banks, NBFCs, post offices|
Hence, non-onwards banks, stock exchanges and corporates will be mandated to report large investor transactions with the income tax department. Such reporting will be required in the intervals that the department will communicate through further notice. At present, these specified entities are only mandated to report their clients’ financial transactions on or before 31st May, following the end of the financial year in March.
How will this information be used?
The income tax authorities will use this information for providing pre-filled income tax returns to the assessees, thereby offering convenience in ITR filing. Also, it will help the income tax department to improve tax compliance and reduce tax evasion.
So, on the one hand, it would become easier to file returns as the data will be auto-populated in the Income-tax returns on the government portal. However, on the other hand, the individuals will have to remain vigilant for accurate reporting of income as any error in reporting might invite notice from the income tax authorities.
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