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Withdrawing INR to Bank from the cryptocurrency

Many Crypto Investors and Traders are very nervous about withdrawing INR to Bank from the cryptocurrency. These are normally the profits that they have earned from the cryptocurrency investments or trades. Their main concern is due to lack of knowledge about banking regulations and fear of income tax department. Today we shall talk about these and some more.

Lets tackle some common questions around this like - How the Income Tax department receives this information? Who provides this information to the IT department? What are the incomes that are reported to the IT department? What is the list of high value financial transactions that are reported to the department for FY 2020-21 / AY 2021-22? 

List of High Value Financial Transactions reported to Income Tax Department

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With an aim to curb black money mess and to track high value cash transactions, the government has decided to implement new reporting guidelines with effect from November 2016, March 2017 & Aug 2020. As per the Government's notification, all goods & services providers have to report to the IT department about high value cash transactions & cash receipts.

Under the new norms, cash receipts, purchase of shares, mutual funds, immovable property, term deposits, sale of jewellery, sale of foreign currency will have to be reported to the tax authorities in a prescribed format, which is form 61A.

  • Immovable Property : The Registrar of properties will have to report purchase & sale of all immovable property exceeding Rs 30 Lakh to the Income Tax authorities.
  • Transfer or Deposits in Banks : Banks will have to report transfer or deposits aggregating Rs 10 lakh or more in a financial year in one or more accounts of a person.
  • Transfer or Deposits in Fixed Deposits in Banks :  Banks will have to report transfer or deposits aggregating Rs 10 lakh or more in a financial year in one or more Time Deposit accounts of a person (other than a time deposit made through renewal of another time deposit). These norms will also cover deposits and withdrawal made in Post Office Account.
  • Any transfer or payment of Rs 10 lakh or more in a financial year for purchase of bank drafts or pre-paid instrument issued by RBI will also be reported.
  • Credit Card Bill Payments : If you make Credit Card bill payments of more than Rs 1 Lakh p.a in cash mode (or) Rs more than Rs 10 Lakh through Transfer or Deposits etc.,
  • Investments in Financial Securities : A company has to report receipt of Rs 10 lakh or more from a person/an investor in a financial year for acquiring bonds, debentures, shares or mutual funds (other than the amount received on account of transfer from one scheme to another scheme of that Mutual Fund).

Other than above transactions - Purchase of jewellery, white goods and paintings of above Rs 1 lakh, payment of education fees and donations of a similar amount, domestic business class and foreign travel, and hotel bills of Rs 20,000 will also come under the Income Tax Department’s scanner.

We specialise in Crypto Taxation and can guide in the right direction. So for any query, help or feedback you may schedule an appointment here - Appointment with CA. Please note the all consultations with the CA are Paid consultations.

Who report High value Financial Transactions

  • Banks – They report High Value transactions related to transfers, deposits, fixed deposits, credit card payments etc.
  • Mutual Fund Companies
  • Companies issuing bonds or debentures
  • Companies issuing shares
  • Sub-Registrar offices on real-estate deals.
  • Car dealers
  • Jewellers
  • White Good Sellers, etc

The Income Tax department is looking to include more transactions and third parties under its transaction reporting framework. This means that financial institutions and other firms will have to report transactions that are above the prescribed thresholds.

The tax department will then mine the data to identify people, who are making large purchases, but are not paying taxes or filing their tax returns. This is part of the government’s efforts to stop tax evasion.

Note that it is mandatory that all the specified entities (third parties) to furnish these details in respect of specified financial transactions registered or recorded by them during the Financial Year.

All the above third party establishments have your PAN details and they quote PAN details of all the high value financial transactions recorded by them in report submitted to the income tax authority.

The other transactions that will come under the scanner include payment of life insurance premium of above Rs 50,000, payment of health insurance premium and property tax payment of more than Rs 20,000 and electricity consumption of above Rs 1 lakh. 

What happens when you have High Value Transactions in your bank account?

If there are High Value Transactions done in your Bank accounts, the IT department may issue Compliance notice to you. You will be required to respond to these notices.

How to avoid receiving Income Tax notices on High Value Financial Transactions?

It is often observed that many Crypto Investors or Crypto Traders try to avoid showing their sources of income or tend to show LESS income in ITR to reduce their income tax liability. But, they do not know the fact that the IT department might have complete knowledge about their financial transactions.

Therefore, it is better to declare all your sources of income and investments (including cryptocurrency) while filing your income tax return. Else, it may lead to adverse consequences.

 

Below are few tips to avoid getting tax notices on high value financial transactions;
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