Understanding Income Tax in India: Guide to Compliance and Reporting

Overview of Income Tax in India

Income Tax is a cornerstone of India’s taxation system, contributing over 50% of the revenue collected by the Central Government. It is sourced from both corporations and individuals, yet only 2-3% of the individual taxpayer population fulfills their income tax obligations. However, this percentage is steadily increasing due to enhanced data collection by the Income Tax Department. This wealth of information serves to discourage tax avoidance and evasion, encouraging accurate disclosures, compliance, and complete tax payments.

The Income Tax Department has transitioned from a traditional revenue collector to a vital repository of information, significantly enhancing its capability to govern effectively. Technological advancements, combined with timely legislative amendments, have allowed for the establishment of a comprehensive and proactive framework for collecting and analyzing taxpayer data. This data is organized in an internal report known as the Individual Transaction Statement (ITS), which is accessible to the Income Tax Officer responsible for the taxpayer’s jurisdiction.

To promote voluntary disclosures and minimize post-filing disputes, a selection of entries from the ITS is made available to taxpayers in a document known as Form 26AS—Annual Information Statement. Form 26AS serves as a subset of the ITS. Following a significant update on May 28, 2020, the Income Tax Department expanded Form 26AS to include additional entries and detailed extracts from the ITS.

Information Overview

The table below highlights the different types of information reported to the Income Tax Department, the particulars of these reports, and how they are categorized in both the ITS and Form 26AS:

No	Reporting Entity	Information Type	Reported Details	Transaction Amount Threshold	Compiled in ITS	Disclosed in Form 26AS
1	Bank	Cash	Payment made for bank drafts, pay orders, etc.	10,00,000	Yes	No
2	Bank	Cash	Payments for pre-paid instruments issued by RBI	10,00,000	Yes	Yes
3	Bank	Cash	Cash deposits/withdrawals in current accounts	50,00,000	Yes	No
4	Bank/Post Office	Cash	Cash deposits in savings accounts	10,00,000	Yes	Yes
5	Bank/Post Office/NBFC	Fixed Deposits	New fixed deposits (excluding renewals)	10,00,000	Yes	No
6	Credit Card Issuing Bank	Credit Card	Cash payments for credit card bills	1,00,000	Yes	No
7	Credit Card Issuing Bank	Credit Card	Non-cash payments for credit card bills	10,00,000	Yes	Yes
8	Company/Institution	Bonds or Debentures	Purchase of bonds or debentures	10,00,000	Yes	Yes
9	Company	Shares	Purchase of shares directly from the company	10,00,000	Yes	Yes
10	Company	Shares	Buyback of shares from individuals	10,00,000	Yes	No
11	Mutual Fund Trust	Mutual Fund	Purchase of mutual fund units	10,00,000	Yes	Yes
12	Bank/Authorized Forex Dealer	Foreign Currency	Purchases of foreign currency, including travel expenses	10,00,000	Yes	No
13	Registrar/Sub-Registrar	Immovable Property	Purchase or sale of property	30,00,000	Yes	Yes
14	Tax Audit Liable Person	Cash	Cash receipts from sales of goods/services	2,00,000	Yes	No
15	Bank	Cash	Cash deposit over Rs. 2,00,000 in a single day	2,00,000	Yes	No
16	Bank	Cash and TDS	Cash withdrawal subject to TDS on amounts exceeding limits	1,00,00,000	Yes	No
17	Bank	Interest Income	Interest reported without TDS based on Form 15G/15H	All Transactions reported	Yes	Yes
18	Deductor of TDS	Services/Salaries	TDS deductions and details of services/salaries paid	As per TDS provisions	Yes	Yes
19	Collector of TCS	Goods Sold	TCS collected on goods sold	As per TCS provisions	Yes	Yes
20	Registered Trusts/Institutions	Donations	Details of donations eligible for income deduction	All Transactions reported	Yes	No
21	Income Tax Department	Direct Taxes	Receipt of various tax payments	All Transactions reported	Yes	Yes
22	Income Tax Department	TDS/TCS	Outstanding demand records of TCS and TDS	All Transactions reported	Yes	Yes
23	Income Tax Department	Direct Taxes	Outstanding income tax demands	All Transactions reported	Yes	No
24	Income Tax Department	Direct Taxes	Amounts issued as refunds and interest	All Transactions reported	Yes	Yes
25	Income Tax Department	Proceedings	Information on pending actions	All Transactions reported	Yes	No
26	Income Tax Department	Proceedings	Information on completed assessments	All Transactions reported	Yes	No
27	Other Acts' Authorities	Any Information	Details received from other officers	—	Yes	No
28	GST Department	Indirect Taxes	Turnover reported in GST returns	All Transactions reported	Yes	No
29	Customs Department	Import/Export	Details of goods imported/exported	All Transactions reported	Yes	No
30	Recognized Stock Exchange	Shares	Details of shares traded (available upon request)	When requested	Yes	No
31	Immigration Department	Foreign Travel	Details of foreign travels	—	Yes	No
32	Local Municipal Authority	Business Premises	Details of registered business premises	—	Yes	No
33	Any Person	Any Information	Information received from any individual deemed relevant	—	Yes	No
34	International Transaction Info	Foreign Transactions	International transactions and foreign taxes details	All Transactions reported	Yes	No
35	Income Tax Department	Foreign Outward Remittances	Details of foreign remittances	All Transactions reported	Yes	No
36	NSDL or CDSL	Demat Account	Details of held DEMAT accounts	All Transactions reported	Yes	No
37	Recognized Stock Exchange	Trading	Commodities, options, or futures traded	All Transactions reported	Yes	No
38	Income Tax Department	Basic Details	Taxpayer's email, mobile number, date of birth, Aadhaar	All Transactions reported	Yes	No

The Individual Transaction Statement serves as an internal document where the Income Tax Department compiles information from various sources, including Annual Information Reports (AIR), Central Information Branch (CIB), and Online Tax Accounting Systems (OLTAS). AIRs are annual reports submitted by banks, registrars, and companies disclosing specific transactions under income tax regulations. The CIB collects relevant data by specifically requesting details from various entities for further analysis.

A comparison of the previous and revised versions of Form 26AS highlights a significant enhancement in its relevance due to increased transparency and disclosures. As information is pivotal for decision-making, Form 26AS is expected to become an essential document for banks when sanctioning loans, much like credit ratings for borrowers.