In its third term, the Modi-led government is working on further measures to plug tax evasion or leakages.

The income-tax (I-T) department is considering widening the scope of data-sharing from various institutions and lowering the threshold for reporting financial transactions to below Rs 10 lakh.

This move is being considered for specified financial transactions (SFTs), such as interest, dividend, and capital gains. The present limit for reporting such transactions is Rs 10 lakh and above.

This is part of a larger strategy of the I-T department to strengthen its e-verification process for filing returns, a senior government official told Moneycontrol.

“The threshold for matching financial transactions could be lowered to capture a broader range of data. Till now, a transaction limit of Rs 10 lakh was there. That limit may be decreased, to say Rs 5 lakh,” the official told Moneycontrol.

Specified transactions

Currently, the threshold for SFT reporting is specified under Table 114E of the I-T Act, which includes transactions related to dividends, capital gains, and interest. The information collected is used for the pre-filling of I-T returns.

Under Rule 114E, there are 13 SFTs that institutions, such as banks, registrars, and stock exchanges, must report to the I-T department.

They include payments of Rs 10 lakh or more made in cash for purchasing bank drafts or pay orders, as well as payments of Rs 10 lakh or more during the financial year for the purchase of pre-paid instruments.

Additionally, cash deposits or cash withdrawals, including those made through bearer’s cheques, totalling Rs 50 lakh or more from one or more current accounts, and cash deposits totalling Rs 10 lakh or more in a financial year across one or more accounts, excluding current accounts and time deposits, must also be reported. Other specified transactions are covered under this rule as well.

Reporting institutions

The government is also considering increasing the number of institutions required to share financial data with the I-T department.

“We are looking to increase their ambit, asking more institutions to share information,” the official said.

Banks, post offices, non-banking financial companies (NBFCs), registrars, stock exchanges, mutual fund companies, credit card issuers, depository participants, companies issuing bonds or debentures, companies issuing shares, authorised forex dealers, registrar of companies (RoCs) and trustees of mutual funds are required to report SFTs above certain thresholds, which helps the I-T department track high-value transfers.

Under the current e-verification process, SFT data from various institutions is matched against the taxpayer's declared income. If discrepancies are found, the details are sent back to taxpayers for verification.

“The mismatches that still remain are sent for e-verification after taking the taxpayer’s view,” the official explained. Taxpayers are then given the opportunity to file an updated return to correct any inconsistencies.

“The focus will be on strengthening the e-verification process by improving the system's ability to identify discrepancies in financial transactions. To plug loopholes, the government may look to increase the ambit of SFTs and ensure a better system-driven matching,” the official said.

To further support this initiative, the government is likely to increase manpower in units handling e-verification.

“Strengthening the system requires more resources, and we are likely to see an increase in manpower to ensure that the process is robust. The move is expected to make the e-verification process more effective in detecting and addressing tax evasion, ultimately leading to higher compliance,” he added.