High-value transactions under tax lens

On Wednesday, a day after the effective import duties on gold and silver were raised, the income-tax department said it will embark on a special drive to scrutinize high-value transactions starting 20 January. Not only is this aimed at helping the government mitigate some of the shortfall in tax collections, but it will also check tax evasion and the generation of black money.

The drive, which will continue till 20 March, will verify all high-value transactions, be it investments, deposits or expenditure by persons who are not income-tax assessees or those who have not furnished their permanent account number (PAN) details while entering into such transactions, the department said in a press release issued on Wednesday.

Though the department did not specify how the high-value transactions will be classified, analysts say that the department may focus on transactions above ₹ 10 lakh.

“The department’s drive may focus on purchase of luxury items, and if the expenditure on these is out of post-tax income," said Sudhir Kapadia, tax markets leader at audit and consulting firm Ernst and Young.

“While this is a good step, it will, however, take into account only recorded transactions where payments are made by cheque and where there is a trail," he said. “But what happens when transactions are paid for by cash and are unrecorded by both the buyer and seller?"

M.C. Joshi, chairman of Central Board of Direct Taxes, had said last month that the department will focus on bigger assessees and companies in sectors that are performing well to meet the tax collection targets.

“In the short term, the drive may only act as a deterrent and not directly impact revenue," Kapadia said. “But it will help in unravelling the trail as to where the illegal funds are entering into the system."

Failure to pay tax could attract a penalty of up to 300% of the unpaid levy, and also prosecution in some cases, the department said in its release.

In the past month, the government has been exploring ways to raise revenue, the import duty on gold and silver being one such measure.

The government is also nudging public sector units (PSUs) to pay higher dividends this fiscal year. Besides these measures, the government has also attempted to raise money by pledging Specified Undertaking of the Unit Trust of India assets and allowing government-owned financial institutions to buy back part of the government’s stake in blue-chip PSUs.

remya.n@livemint.com

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