New Form 26AS – The Game-Changer In Income-Tax

IMPLICATIONS TO ASSESSEES AND PROFESSIONALS IN THE FACELESS SCENARIO

It seems to be a human trait not to divulge financial information to anybody outside their inner-circle.The experience of many tax professionals has been that similar restraint is observed by clients even in their consultations in tax affairs. Such withholding of information would result in avoidable embarrassment in tax matters, both for the assessee ad his advisor.

Coming to Form.26AS, it was introduced as a convenient Tax Ledger for the assessee and has removed the hassles of filing physical Certificates of Tax Deduction Certificates for assessees. By its name, it has been a ‘Tax Credit Certificate’. With the Income Tax Department’s (ITD) proactive steps to track and trace numerous financial transactions across the economy, the width and depth of the data-capturing has permeated into many sectors including Banks, Mutual Fund Companies, Registration Departments of State Governments and Motor Vehicle Registration Authorities, since the introduction of Annual Information Report in 2013.

Prior to the reflection of the financial data in Form.26AS w.e.f. 1.6.2020, assessees were called upon to offer explanations on the data available only to AOs and queried upon by the AOs based on such financial data. Now, the new Form.26AS has paved the way for a level playing field to the assessees and the ITD. It is a significant step towards improvement of mutual trust promised by the Government. The data availability housed in the New Form.26AS to an assessee before starting tax compliances before the specified dates, ensures accuracy of compliance and avoidance of punitive actions.

As assessees embark upon a multitude of financial transactions, which has a bearing on the income computation, aggregation of financial data from different sources and its analysis ensures proper tax compliance. It assists the assessee and also acts as a deterrent, in case of not addressing the data in the possession of the ITD.

 IT IS IMPERATIVE FOR THE ASSESSEE AND THE TAX PROFESSIONAL TO STUDY THE FORM.26AS, ANALYSE THE DATA AND UTILISE THE RELEVANT INFORMATION IN ACCOUNTING AND TAX COMPLIANCES.

The new Secs. 285BA and 285BB have enlarged the scope of Specified Financial Transactions reportable to the ITD and the New Rule.114-I (the latter introduced in the Eleventh Income-tax Amendment Rules, 2020)  enables the display on the following data in the Form w.e.f.1.6.2020:

TABLE

Sl. No. Nature of information
(1) (2)
(i) Information relating to tax deducted or collected at source
(ii) Information relating to specified financial transaction
(iii) Information relating to payment of taxes
(iv) Information relating to demand and refund
(v) Information relating to pending proceedings
(vi) Information relating to completed proceedings

In addition, the data pertaining to transactions specified in secs.90 and 91 of the Act are also shown by the Form.

The New Form 26AS contains the basic details of the assessee in Part.A and has the following information in Part.B, and the latter is discussed below, with a practical approach:

The financial data borne out by Form 26AS falls under the following categories:

1. TDS/ TCS details, Tax payments, Refunds, Pending and Completed proceedings

2. Regular Business Transactions like Bank Deposits, Withdrawals in the course of business (or made as GPA holder)

3. Capital Account transactions like acquisition of business assets viz., Land, Buildings, Motor Vehicles etc.

4. Personal financial transactions like Investment in Post-offices and in Mutual Funds/ Shares/ Expenditure on Foreign travel, purchase of jewellery, White Goods etc.

5. Immovable Property transactions (on his own account or on behalf of others as GPA holder/Trustee/ Officer)

6. Other information as per Agreements made in terms of Secs.90 and 91, income Tax Act

The above transactions fall into: Capital Field, Revenue Field and Personal Fields and the accounting treatment of each kind of information depends on the Field to which it belongs. The assessee and his consultant need to evaluate the transactions carefully before finalising the filing of ITR, as any error would land the assessee to have resorted to under- reporting/mis-reporting with attendant penal consequences as per Sec. 270A read with Sec. 270AA.

Specified Financial Transactions sitting in the New Form 26AS and the relevant statutory provisions

Specified Fincl. Transaction SFT Reporting entity/ Threshold Limit Impact on Assessee Relevant statutory provisions to be considered
Cash Deposits in a year in Bank (other than Current A/c) All Banks/Rs.10 lakhs per year Source to be explained with evidences Section 68/ Section 69/ Section 69A

 

Fixed Deposits All Banks/Post-Offices/ Nidhi Companies/Rs.10 lakhs per year Source to be explained with evidences Section 68/ Section 69/ Section 69A
Cash Deposits/ Withdrawals in a year in Bank (Current A/c) All Banks/ Rs.50 lakhs per year BOTH DEPOSITS AND WITHDRAWALS Source to be explained with evidences / If business receipts, verify whether all the transactions were considered for ITR and if books maintained, entries recorded properly.

Withdrawals from bank ,if for business/profession, to be considered for reckoning income

Deposits:

Section 68/ Section 69/ Section 69A

If the business receipts were not taken into account, income from business needs re-computation qua the unrecorded entries, if proved as sales/ collections from Debtors, otherwise Sec.115BBE is attracted.

Credit Card Payments All Banks or Credit Card Issuers/ Rs. 1 lakh in Cash and Rs.10 lakh by a mode other than cash Whether the transaction were considered in computing income, if laid out for business and in for non-business purposes, the sources were duly explained Section 68/ Section 69/ Section 69A
Share Application Money/Investment in Shares OR Bonds OR Buy-back of Shares Company issuing Shares OR Bonds or Listed Company buying back/ Rs. 10 lakhs Source to be explained with evidences Section 68/ Section 69/ Section 69A
Investment in Units Trustee of MF / Rs. 10 lakhs Source to be explained with evidences Section 68/ Section 69/ Section 69A
Receipts for issue of Foreign Exchange or Traveller’s Cheques Authorised Money changer under FEMA/ Rs. 10 lakhs in one FY Source to be explained with evidences Section 68/ Section 69/ Section 69A
Receipts IN CASH from persons for purchases Assessee covered by Sec.44AB, Income-tax Act /

Rs.2 lakhs, in a FY

Source to be explained with evidences Section 68/ Section 69/ Section 69A

PLUS Sec.269ST which prohibits payment in cash over Rs. 2 lakhs

SPENDS TO BE TRACKED BY THE ITD FROM A DATE TO BE NOTIFIED:
Payments to Hotels above Rs. 20,000

Payments of Property Taxes above Rs.20,000

Payment of Health Insurance Premia above Rs.20,000

Payment of Rent above Rs.40,000

Life insurance premium over Rs.50,000

Electricity Charges paid above Rs.1 lakh

Fee for Educational Instns./ Donations above Rs.1 lakh

Purchase of Jewellery, white goods, paints, Marble etc. above Rs.1 lakh

Business class air travel in business class or foreign travel

Share transactions/DEMAT Accounts/Bank Lockers

 

 

By the vendor/service provider

NOTE OF CAUTION:

This creates a great responsibility on the Assessee, as the spectrum of the specified transactions could have struck by him on his own account or in a fiduciary capacity or as an Executive or Employee or as an Attorney. In all the cases other than the first one, the payer has to collect and retain supporting data for production ( Bills, Source for payment, Information whether the expenditure was recorded in the appropriate person’s accounts) , when he is called upon to explain the transaction. Moreover, in the New Faceless assessment scenario, third party confirmations are not easy to obtain and submit, to the satisfaction of the Department.

Section 68/ Section 69/ Section 69A And Sec.115BBE

It is also relevant to note that in the case of multiple accounts or joint accounts of Banks, Shares and Units all the joint holders’ accounts are aggregated to apply the monetary limits.

The following issues emerge from the SFTs in Form 26AS, which need to be considered by the ITD in application of the data for evaluating the quantum of income of assessees:

  • Where the purchase of Goods, Marble , Paints are incurred for the business of an assessee, and where they are in the ‘Capital Field’ the same is not reflected in the P&L Account; they don’t have a direct bearing on the quantum of income returned by a business assessee. As such, correlation between the income returned and the expenditure is not immediately ascertainable. But, in the meantime, if a suspicious eye-brow is raised against the assessee, the explanation might be considered by the assessee,as avoidable for genuine reasons.
  • Similarly, if travel by air and foreign travel are undertaken for business purposes by the Directors/ Executives of a business and in addition, the same are incurred by Credit Card, the one-to-one relationship between the expenditure and income from business may not be perceivable prima facie. If the person spending is not the assessee, there is more responsibility to procure data and file, when called upon.
  • The above is also true to some extent in respect of Property taxes, Rent and Electricity by Individual Assessees.
  • Moreover, the ITRs in no way ask the above financial data or their impact on the income returned. As such, the way the data in the Form is sought to be interpreted by the Government and the instances where an explanation is sought from assessees need to be determined clearly.

As such, the tax compliance becomes a more responsible task and simultaneously, some sectors of the tax payers, particularly salaried class and retirees are likely to feel the analysis of Form 26AS, burdensome for obvious genuine difficulties as mentioned above. The compliance cost may be higher than before in view of the extra analytics, for which many tax payers need to engage the services of tax professionals. Even for those already hiring the services of tax advisors, clients need to furnish more documents/material to support the data sitting in Form 26AS. This obligation of compliance coupled with Faceless Assessment Scheme shall be met with care and caution as it paves the way for transparency and integrity in the tax compliance, which ushers the Economy to the next level.

Author Bio

Qualification: CA in Practice
Company: K SIVA RAMA KUMAR
Location: MACHILIPATNAM, Andhra Pradesh, IN
Member Since: 18 Jul 2020 | Total Posts: 2

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9 Comments

    1. K SIVA RAMA KUMAR says:

      Sir, The concern is well placed and was addressed in the Article.The last paragraph from the Article reads-” As such, the tax compliance becomes a more responsible task and simultaneously, some sectors of the tax payers, particularly salaried class and retirees are likely to feel the analysis of Form 26AS, burdensome for obvious genuine difficulties as mentioned above. The compliance cost may be higher than before in view of the extra analytics, for which many taxpayers need to engage the services of tax professionals.”

  1. GANDHI MOHAN BHARATI says:

    Though a good move by the Government, I would have been happier if a provision is given to challenge the reporting in 26AS whether it be TDS or other columns rather than asking individuals to sort out with the Reporting Agency. It is a big fight over TDS already. I have a wrong report of Deposits above Rs.10.00 lakhs; though I have taken up with the Bank concerned, I wonder what will happen if they do not rectify their mistake. I had place Rs1.00 Lakhs and they hey have typographic error (?) reported 10000000/-. I am sure that I will get notices and be harassed. In faceless assessment, I do not know my fate.

  2. ca Satish Shanbhag says:

    Very good analyses. Informative and thought-provoking. Useful for assessees and Tax professionals. Congrats Ca K Siva Ram Kumar.

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