How the Income Tax Department Tracks High-Value Transactions: Everything You Need to Know

CA Study

The Income Tax Department has significantly improved its ability to track financial transactions to ensure tax compliance. Using advanced data analysis and collaboration with other government agencies, the department identifies individuals who either fail to file their Income Tax Returns (ITR) or underreport their income.

If you’re engaging in high-value transactions but not declaring them in your ITR, you may receive a notice. Let’s dive into how the tax department keeps track of financial activities, the latest updates on reporting requirements, and how taxpayers can stay compliant.

Latest Update on High-Value Transactions

The Central Board of Direct Taxes (CBDT) has made it mandatory for self-reporting organizations (SROs) such as banks, post offices, co-operatives, fintech companies, and mutual fund houses to report all high-value transactions. These entities must submit their reports by May 31 of the following financial year to help track undeclared income sources.

What Are High-Value Transactions?

High-value transactions are financial transactions exceeding a certain threshold that must be reported to the Income Tax Department. Banks, financial institutions, and other reporting entities must disclose these transactions through Form 61A (Statement of Financial Transactions – SFT) or Form 61B (Reportable Accounts).

Common High-Value Transactions That May Trigger a Notice

How the IT Department Traces High-Value Transactions

1. Upgraded Form 26AS & Annual Information Statement (AIS)

• Form 26AS now includes Specified Financial Transactions (SFT), making it easier for taxpayers to verify their financial records.
• The AIS (Annual Information Statement) provides a consolidated view of financial transactions, ensuring all taxable activities are disclosed.

2. TDS on Cash Withdrawals

• If cash withdrawals exceed ₹1 crore in a financial year, a 2% TDS is deducted.
• If an individual has not filed ITR for the last three years, the TDS rates are:
  • ₹20 lakh – ₹1 crore: 2% TDS
  • Above ₹1 crore: 5% TDS

3. Mandatory ITR Filing for Specific Transactions

Even if total income is below ₹2.5 lakh, ITR filing is mandatory if any of the following transactions occur:

• Deposits over ₹1 crore in current accounts
• Foreign travel expenses exceeding ₹2 lakh
• Electricity bill payments over ₹1 lakh

How to Respond If Your Form 26AS Reflects SFT Transactions

If your Form 26AS or AIS shows high-value transactions, follow these steps:

1. Verify the accuracy of the reported transactions.
2. Report the transactions correctly when filing your ITR.
3. Ensure proper tax calculation to avoid discrepancies.
4. Any mismatch or underreporting may result in an income tax notice.

Income Tax Department’s E-Campaign for Compliance

To encourage voluntary compliance, the IT Department has launched an e-campaign targeting:

1. Non-filers who haven’t submitted their ITR.
2. Individuals with discrepancies in their filed tax returns.

Who Will Receive E-Campaign Emails/SMS?

You may receive a notice if:

• You have not filed your ITR despite earning taxable income.
• There are discrepancies in your return, such as mismatched transactions in AIS.

How to Respond to an E-Campaign Notice Online

If you receive a notice via email/SMS, follow these steps to respond:

Step-by-Step Guide:

1. Log in to your Income Tax e-filing account.
2. Go to ‘Pending Actions’ → ‘Compliance Portal’ → ‘e-Campaign’.
3. Select the relevant e-campaign notification.
4. Click ‘Provide Feedback in AIS’.
5. Select the relevant information category where a response is required.
6. Submit your response based on one of the following options:
   • Information is correct
   • Information is not fully correct
   • Income is not taxable
   • Information relates to another PAN/year
   • Information is duplicate
   • Information is denied
7. After submission, download the acknowledgment for records.

Why Is Submitting a Response Important?

The Income Tax Department uses digital tracking to monitor high-value transactions and reduce tax evasion. By complying with reporting requirements, taxpayers can:
✅ Avoid penalties and legal issues.
✅ Stay transparent and compliant with tax laws.
✅ Prevent unnecessary scrutiny or notices from tax authorities.

The Income Tax Compliance Portal provides a user-friendly way to manage responses online. Instead of visiting the tax office, taxpayers can verify transactions, update records, and respond to notices from the comfort of their homes.

💡 Pro Tip: Regularly check your Form 26AS & AIS to ensure your financial records match your tax filings.

Final Thoughts: Stay Tax Compliant & Avoid Notices

With the Income Tax Department’s digital tracking systems, it has become easier to identify high-value transactions and non-filers. To avoid penalties and legal trouble:
✔ Keep a record of all financial transactions.
✔ Check Form 26AS & AIS regularly.
✔ File your ITR on time, even if you believe your income is below the taxable limit.
✔ Respond to any e-campaign notices promptly.

If you need assistance in responding to an Income Tax notice, consulting a tax professional can help ensure a smooth resolution. Staying compliant is not just a legal obligation—it’s a responsible contribution to the country’s economy.

CA Study Shop provides classes & books for CA CS CMA Students. We have partnered with more than 100 top faculties of country and provide excellent customer support which is evident from our 4.9/5 star rating on Google. Student can connect with us via any mode here.

Best of luck!

Stay Connected for more authentic updates.

Jai Hind,Vande Mataram
Team CA Study