From Rs 10 Lakh to Rs 5 Lakh: Government proposes major shift in tax reporting thresholds

In a bid to tighten control over tax evasion, the Modi-led government is considering significant reforms in tax reporting rules. The Income Tax (I-T) department is looking to expand data-sharing practices and lower the reporting threshold for Specified Financial Transactions (SFTs) from Rs 10 lakh to potentially Rs 5 lakh.

Under the current regulations, as specified in Rule 114E of the Income Tax Act, institutions are required to report 13 types of SFTs, including high-value transactions related to dividends, capital gains, and interest. The existing reporting threshold is set at Rs 10 lakh. This move to potentially lower the limit aims to capture a broader range of financial data, enhancing the ability to track and address discrepancies in income reporting.

A senior government official noted, “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.” This adjustment is part of a larger strategy to improve the e-verification process for income tax returns.

The initiative also involves increasing the number of institutions required to share financial information with the I-T department. Currently, banks, post offices, non-banking financial companies (NBFCs), and other financial entities are mandated to report transactions above specified thresholds. Expanding this list could include additional sectors, further broadening the scope of financial data collected.

To support these changes, the government plans to boost manpower in the units handling e-verification. This increase in resources is expected to enhance the system’s efficiency in detecting and addressing inconsistencies in reported financial information. “Strengthening the system requires more resources, and we are likely to see an increase in manpower to ensure that the process is robust,” the official added.

The overall goal of these measures is to create a more effective tax administration system that can better identify and mitigate tax evasion, leading to improved compliance and financial transparency.