The Central Board of Direct Taxes (CBDT) has communicated a directive to the Income Tax department, highlighting the necessity for ‘non-intrusive’ oversight of excessive cash transactions in industries, including hotels, luxury goods sales, healthcare facilities, and IVF clinics. This initiative is part of the CBDT’s Central Action Plan for 2024-25, which seeks to mitigate tax evasion and enhance compliance within high-cash sectors, according to CAclubindia.
Focus on High-Cash Sectors
The CBDT has pinpointed particular business sectors characterized by frequent cash transactions exceeding Rs 2 lakh. These sectors encompass hotels, banquet facilities, high-end retail outlets, IVF clinics, hospitals, designer apparel shops, and medical college seats reserved for Non-Resident Indians (NRIs).
Although there are legal obligations to report these transactions, evasion is widespread, as financial institutions often neglect to disclose such transactions in the Statement of Financial Transaction (SFT).
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Need for Non-Intrusive Verification
The CBDT has emphasized the necessity of performing verification exercises in a manner that is non-intrusive, thereby ensuring compliance while minimizing disruption to legitimate business operations. The Board has pointed out the importance of validating high-value consumption expenditures against taxpayer data to identify possible instances of tax evasion.
Rise in Arrear Demands
The Central Board of Direct Taxes has raised alarms regarding the significant escalation in arrear demands, which surged from Rs 24.5 lakh crore in April 2023 to Rs 43 lakh crore in April 2024. In response to this situation, the CBDT has mandated the establishment of specialized teams, overseen by Principal Commissioners, to concentrate on the recovery of tax arrears from the highest 5,000 cases, CAclubindia informs.
Leveraging Data Analytics
The CBDT intends to employ data mining and analytical techniques to pinpoint potential taxpayers, thereby broadening the tax base by focusing on non-filers and individuals whose financial activities are inconsistent with their income tax declarations.
In its action plan for 2024-25, the CBDT advocates for rigorous yet unobtrusive strategies to tackle the problem of unreported cash transactions in critical sectors. Through the use of data analytics and the establishment of specialized recovery teams, the Board seeks to enhance tax compliance and alleviate the increasing backlog of outstanding demands.