Hon’ble PM Narendra Modi has vision to develop nation by reducing corruption and increase the tax base. The Govt. day by day is taking several measures to reduce tax evasion and for this it is adopting technology and is bringing its operation in digital mode and for practical implementation of those measures, banks are held responsible in many areas. Since business houses and other people incur transactions through banking channel, banks are widely held responsible either to report high value transactions or deduct tax at source. The back end compliances of banks has been increased considerably after demonetization and introduction of certain Govt. policies to put a stop on tax evasion.
Banks are held liable for much compliance by Income-Tax Department. Since assesse incurs all the transactions from bank, banking authorities have to fulfill certain reporting and legal compliances which are as follows-
High Value transactions are transactions which are incurred in high denominations. Banks are required to intimate about following high value transactions to Income-tax Department-
a) Cash deposit/ Withdrawal/ Fixed deposit made in bank account of Rs.10 lakhs or more in all bank accounts and Rs.50 lacs made in all Current accounts.
b) Time deposits made, Purchase of Debentures or bonds, investments made in shares and Mutual Funds, buy back of shares by company, purchase of foreign currency of Rs.10 lacs or more.
c) Payment made from credit card of Rs.10 lacs or more against bill raised of purchases or expenses or Rs.1 lacs paid in Cash.
Banks are required to report to Director of Income-tax (Intelligence and Criminal Investigation) by filing Form 61A called Statement of Financial Transaction.Through this form Investigation Wing of Income-tax Department comes to know about your high-value transactions and then it checks whether such person has filed return of income or not. If return is filed whether income disclosed is true and taxes have been paid correctly or not.
From 01stJune 2020 banks are required to deduct TDS if any person withdraws cash above 20 lacs or 1 crore based on their income filing status @ 5% or 2%. The same can be best understood through this table-
The Income Tax department has already provided a functionality ‘Verification of applicability u/s 194N’ for banks and post offices since July 1, 2020.Through this functionality, bank can get the applicable rate of TDS under section 194N of the Income-tax Act, 1961 by entering the PAN of the person who is withdrawing cash. Govt. wants to encourage digital transactions and slow down cash transactions in business. People with history of cash transactions are taken into consideration with introduction of this section.
Banks are required to deduct TDS on interest payments made at following rates-
a) 10% if PAN is furnished and interest is paid above Rs.10000/-
b) 20% if PAN is not furnished and interest is paid above Rs.10000/-
Banks are not required to deduct TDS-
a) On Saving bank interest
b) If assesse submits Form 15G/H to bank
When banks deducts TDS, the same is reflected in Form 26AS of assessee and he can claim credit of same while paying taxes at the time of filing return of income.
From 01/04/2021 in place of Senior Citizens, banks are required to deduct TDS u/s 194P of Income-tax Act, 1961 and deposit tax into account of Govt. if they fulfill following conditions-
a) He is of 75 years or more during the year.
b) He is Resident in India.
c) He has only pension income and can derive bank interest from same bank in which pension is received. Therefore if he receives bank interest from any other bank then he cannot enjoy this relaxation.
d) The pension received should be received in banks as specified by Govt.
e) He is required to furnish declaration to specified bank.
Banks play a very vital role in completion of investigations and assessments of income tax cases reopened of earlier years on the basis of transactions incurred by assesse. Banks are required to provide statements, details of time deposits made, high value transaction, details of credit card transactions, etc. during assessment and appeal proceedings.
Assessee has to make an application to bank for requirement of these documents so that assessments can be completed. Income tax Officials also asks bank to produce bank statements or details relating to transactions during investigation. In that case officials can ask bank statements or documents relating to investigation of any person and bank has to provide those documents. Therefore banks play very vital role in completion of investigation and assessment proceedings of income tax.
It was a bold step taken on 08/11/2016 to reduce use of cash to fund illegal activity and terrorism in which old 500 and 1000 notes was demonetized. In operation clean money program launched by Govt. a large number of cases were scrutinized in whose case large amount of cash was deposited during demonetization period. Banks played a very vital role during all such process.
Banks play a vital role in the economic development of a country. They act as pillars in catching tax evaders, supplying information and thereby collecting taxes. They act as an intermediary and therefore Income-tax Deptt. also puts responsibilities and liabilities on banks so that tax evasion can be reduced. Govt. is now very active in making policies and is taking steps towards smooth execution of those policies. Many things have changed from legal tender currencies to depositing cash in bank to faceless assessment and appeals. Govt. is moving towards digitization and is ensuring reduction of corruption at all levels. Let us also take step to make timely compliances.
The above comments do not constitute professional advice. The Author can be reached at [email protected] or visit website www.financialtreecompany.com. My name is CA Divya Agrawal and I am Practising Chartered Accountant, CEO and Founder of FINANCIAL TREE COMPANY (An online return filing and Tax Consultancy Company). We also upload educational videos in You tube and name of our channel is FINANCIAL TREE COMPANY. Our aim is to help people in improving their financial health by spreading knowledge and love. Stay Financially Fit and Healthy.