With more information than salary, interest income, tax paid, how Form 26AS will affect ITR filing?

There are many salaried persons, who invest in stocks or even do daily trading but never reveal the information related to capital gain / loss in their Income Tax Return (ITR). The motive of not revealing the capital gain/loss in their return of income may be due to sheer ignorance, avoiding trouble of calculating the gains / losses, fear of filing more complicated ITR form than the ITR-1 or to suppress the information to avoid paying higher tax.

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The taxpayers were able to take the advantage so far, because the Income Tax Department used to get information related to just income from salary, interest on bank fixed deposit (Bank FD) and taxes paid from the respective sources, which were revealed in Form 26AS.

But now on, the Department will also get information related to capital gains / losses, dividend income as well as interest on Post Office deposits and deposits in Non Banking Financial Companies (NBFCs), which will be revealed in the new format of Form 26AS.

This will help the ignorant taxpayers include such details in their ITRs, while making it difficult for tax evaders to suppress these details.

“Currently, the Income Tax return forms enables the taxpayers to auto populate details such as Personal Details including Name, PAN, Address, Bank Details, Tax payment and TDS details, etc. In the Budget 2021 proposals, the Finance Minister announced the pre-filling of Income Tax returns with respect to the details of capital gains from listed securities, dividend income, and interest from banks, post office, etc. for the purpose of easing the procedure of return filing,” said Dr. Suresh Surana, founder, RSM India.

“In accordance with the same, the CBDT issued Notification No. 16/2021 dated 12th March 2021 wherein they provided that a specified category of persons required to furnish a statement of financial transaction u/s 285BA of the Income Tax Act, 1961 (hereinafter referred to as ‘the IT Act’) should include information pertaining to capital gains on transfer of listed securities or units of Mutual Funds, dividend income, and interest income,” he added.

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But how will the Income Tax Department get all the information?

In accordance with the said Notification, the category of persons required to report such transactions are as follows:

Capital gains on transfer of listed securities or units of Mutual Funds

• Recognised Stock Exchange such as BSE, NSE, etc.
• Depository defined Depositories Act, 1996
• Recognised Clearing Corporation
• Registrar to an issue and share transfer agent registered under SEBI

Dividend Income

• Company distributing such dividend

Interest Income

• A banking company or a co-operative bank covered under the Banking Laws
• Post Master General defined under the Indian Post Office Act, 1898
• Non-banking financial company which holds a certificate of registration under the RBI Act, 1934

How will it affect the taxpayers?

“The current provisions u/s 285BA of the IT Act already require companies issuing shares, trustees of mutual funds, etc to furnish the Statement of Financial Transaction for certain transactions in shares and mutual funds, etc. amounting to 10 lakh or more. As such, due to the broad coverage of data in the Annual Information Statement (AIS), the taxpayer needs to ensure that all details of income are appropriately considered while filing their tax returns. Due to the data analytics used by the Income tax department, any tax escapement by the taxpayer, either advertently or inadvertently, would be more closely scrutinised,” said Dr. Surana.