Now that the Budget is well behind us, it is time to prepare ourselves for filing our income tax returns, for which the last date is July 31. Last-minute compilation of data often results in giving minimum importance to annual information return (AIR) required to be filed along with the returns.
AIR(in Income tax return one section is relates to AIR) is a medium through which an individual discloses high-value transactions entered into during a financial year. These transactions include purchases made through credit cards for R2 lakh and above, cash deposits of R10 lakh and above in savings bank account, etc (See chart).
Here, cash deposit means deposit of physical cash into a bank. However, in case you have three credit cards of the same bank, then you have to aggregate the amount spent on the three cards and thus file the AIR. So, one needs to know and understand what is actually required to be disclosed in the AIR vis-à-vis each transaction.
Information with respect to the above specified transactions is collected by the commissioner of the I-T department’s Central Information Branch through various sources such as banking companies, stock brokers, investment advisors and authorised personnel of MFs, among others.
In Budget 2003, the Central Board of Direct Taxes (CBDT) introduced the AIR and placed the responsibility of disclosing ‘high-value financial transactions’ on the individual. The objective was to get complete information and also to widen the tax base.
There is often a misconception that self-disclosure of high-value transactions such as credit card payments or cash deposits will bear a higher probability of the return being picked up for scrutiny. This is, however, not the case as mere disclosure of transactions under AIR is not the reason for attracting scrutiny of the I-T department.
In fact, tax authorities are anyway privy to this information received from various sources and non-disclosure or incorrect disclosure of these transactions may lead to penalties. In order to avert penalties one should give adequate importance to AIR. Honest AIR disclosures may help an individual to build trust with the I-T officials.
* The writer is executive director (tax), KPMG