Big spends, bigger scrutiny: Here's why taxpayers need to careful from now on 

If you're investing aggressively or indulging in luxury spends, it’s time to ensure your tax records are in sync. The Income Tax Department has intensified surveillance of high-value transactions, and any mismatch between your spending and declared income could invite scrutiny, notices, or even penalties.

CA Nitin Kaushik noted that the government has introduced a tracking system to monitor high-value financial transactions across various sectors. Under this system, activities that will be flagged include cash deposits or withdrawals exceeding Rs 10 lakh in a savings account or Rs 50 lakh in a current account, property transactions involving amounts over Rs 30 lakh, and investments above Rs 10 lakh in stocks, mutual funds, bonds, or debentures. 

What investors need to know

The Central Board of Direct Taxes (CBDT) has directed banks, mutual fund houses, fintech platforms, post offices, and co-operative banks to report high-value transactions by May 31 of the following financial year. Here's what lands in the tax radar:

Cash deposits/withdrawals over Rs 10 lakh in a savings account or Rs 50 lakh in a current account

Property transactions exceeding Rs 30 lakh

Investments over Rs 10 lakh in stocks, mutual funds, bonds, or debentures

Credit card payments above Rs 1 lakh in cash or Rs 10 lakh through any mode

Foreign exchange deals exceeding Rs 10 lakh

Luxury spends like business-class travel, expensive jewelry, high electricity bills, or large donations

Luxury spends and TCS

The Central Board of Direct Taxes (CBDT) has recently expanded the scope of tax collected at source (TCS) under Section 206C of the Income Tax Act to include a variety of high-end luxury goods. This amendment, effective from April 22, aims to combat tax evasion and enhance the traceability of high-value discretionary spending, while also providing the government with a potential additional source of revenue amidst global economic uncertainty.

As per the revised regulations, vendors must now collect TCS at a rate of 1% on the sale of specified luxury items priced above Rs 10 lakh. The list of goods subject to this requirement encompasses products such as wristwatches, designer sunglasses, handbags, artworks, collectibles, yachts, helicopters, golf equipment, home theatre systems, and horses intended for racing or polo competitions.

Before, TCS was mainly applicable to the sale of motor vehicles costing over Rs 10 lakh under Section 206C (1F). But with the Finance Act 2024, it has been broadened to empower the government to designate more categories of high-end goods exceeding this limit.

Why does this matter to you

If you’ve made large investments or high-value purchases that don’t align with your declared income in your Income Tax Return (ITR), you could be flagged for deeper assessment.

What you should do

Ensure your ITR accurately reflects your income and investment capacity. Keep records of major transactions, and don’t overlook routine spending patterns that may appear disproportionate to your reported earnings.