Tax rules amended to step up tax payer data collection

Till now, these entities were only mandated to give a statement of financial transactions by their clients on or before 31 of May following the end of the financial year in March.

The idea is to get information about large transactions by the tax payer that will be used in preparing pre-filled income tax returns, an initiative the government is betting on to improve tax compliance and convenience of filing income tax returns.

The notification said for making pre-filled income tax returns, agencies like stock exchanges, depositories, clearing corporations, registrars, banks, companies, Post Master General and non-bank lenders have to issue statements of financial transactions by their clients “in such form, at such frequency, and in such manner, as may be specified” by a designated official.

Principal Director General of Income Tax (Systems) or the Director General of Income Tax (Systems), are authorised to seek such information with the approval of Central Board of Direct Taxes (CBDT), said the notification. Capital gains from sale of listed shares as well as dividend and interest income are covered under this.

The change brought out by the Income-tax (4th Amendment) Rules, 2021, is effective immediately, the notification said.

The Income Tax department has been stepping up data collection of large transactions in the economy and analysing it to find out unreported income. To facilitate that, it has restricted transactions in cash and has introduced taxes to be deducted or collected at source on a large number of transactions. It is also now actively exchanging data with the Goods and Service Tax (GST) authorities and the Customs authorities to match details of transactions. The idea is to help in formalisation of the economy and widen the tax base. Adding more tax payers would enable a reduction in the tax rates.