A tweet from a government handle, now deleted, was the cause of much upset with social media going a little nuts on the increasing compliance burden on the Indian taxpayer and the increasing intrusion of big government into citizens’ lives. The tweet lists 11 categories of financial transactions that, if made, will trigger reporting by the receiver of the money to the income tax department. Already banks and mutual funds report transactions above a certain threshold. The scope of this reporting is set to expand.
The shops, banks, mutual funds, hotels and so on will make the disclosure to the tax department, and not the taxpayer. The government hopes to find a discrepancy between the income disclosed during the tax filing process and the spends made. As we file our tax returns for financial year 2019-20 (last year), we will see a box that only some people need to tick. These are people who claim that their gross taxable income (before applying any deductions) is ₹2.5 lakh or less, but have made transactions of ₹1 crore or more in a current account, have paid ₹1 lakh or more in electricity bills and have spent ₹2 lakh or more on foreign travel. We see these people around us, they are the ones pulling out wads of cash to pay for high-value gadgets, jewellery, hotel bills and more. They are the ones paying 50-70% of property purchases in cash.