The Central Board of Direct Taxes (CBDT) has directed the Income Tax (I-T) department to monitor cash transactions in sectors such as hotels, luxury brand sales, hospitals, and IVF clinics using a "non-intrusive" approach. The CBDT's instructions come amid concerns about widespread circumvention of reporting requirements for high-value cash transactions.
According to the CBDT's annual action plan for 2024-25, the department has noted a steep rise in arrear demands since the last financial year. It has urged the I-T department to intensify efforts to recover these arrears.
Senior officials revealed that transactions exceeding ₹2 lakh are supposed to be reported through a Statement of Financial Transaction (SFT) by financial institutions. However, this reporting is reportedly inadequate. The CBDT highlighted that despite requirements under section 139A for Permanent Account Number (PAN) in certain transactions, there is no effective reporting or verification mechanism to ensure compliance.
High-value consumption expenditure is to be cross-checked with taxpayer information to identify possible evasions. The CBDT has identified several sectors where large cash transactions are common and where non-compliance is prevalent, including hotels, banquet halls, luxury retailers, IVF clinics, hospitals, designer clothing stores, and NRI quota medical college seats. The CBDT has instructed the tax department to conduct non-intrusive verification exercises in these sectors.
In the 2023-24 fiscal year, the tax department conducted 1,100 searches or raids, seizing assets worth approximately ₹2,500 crore, with ₹1,700 crore in cash. The CBDT also noted that data mining and analytics offer new opportunities for identifying potential taxpayers. The department has been tasked with increasing the number of tax return filers by 10 per cent over the previous fiscal year’s base.
Concerns have been raised about the growing arrear demand, which has surged from ₹24.51 lakh crore as of 1 April 2023 to ₹43 lakh crore as of 1 April 2024. The CBDT has emphasised the need for urgent action to address this rise and reduce the arrears to manageable levels.
To tackle this, the CBDT plans to form special teams led by Principal Commissioners of I-T in each region by the end of September. These teams will focus on recovering tax arrears from the top 5,000 cases, which constitute about 60 per cent of the total demand. The special teams will conduct in-depth analyses and locate physical records related to these major cases.
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