Changes in Form 26AS and how it affects You?

What is Form 26AS

Form 26AS is a tax information statement that traditionally contained details of incomes earned by a person during the year, tax deducted thereon and other tax payments made by him during the year. The form helped taxpayers and their counsels in preparing the income tax returns on a self assessment basis while also helping tax officers in getting a fair idea of the income earned by taxpayers during the year.

What changed?

The Hon’ble Finance Minister in her latest budget speech mentioned that the Form 26AS would be rationalized so as to include other information such as details of property purchase, investment in shares, mutual funds and fixed deposits etc. Consequently, in the midst of the pandemic, the government has given effect to this announcement by introducing a new concept of “Annual Information Statement” u/s 285BB of the Income Tax Act. This statement apart from other existing details of tax paid, TDS deducted and refund paid, would also include details of:

• Specified financial transactions
• Demand outstanding of the taxpayer
• Pending proceedings of the taxpayer
• Completed tax proceedings against the taxpayer

So effectively, from a regular mundane statement of income, Form 26AS has been made an all powerful information aggregator which would give taxpayers, tax officers and other stakeholders, a 360 degree view of the Financial affairs of an assessee.

These changes have been made effective from 1st June 2020 and are currently under implementation. It is expected that form 26AS for all earlier years would also be updated on similar lines.

What is a Specified Financial Transaction?

While most of the other changes are self-explanatory, the devil is in the details when it comes to “specified financial transactions” or SFT. SFT include the following as of now:

• Purchase of Bank drafts in cash> Rs. 10 lakh or more in a Financial Year
• Purchase/sale of Immovable property> 30 lakhs or more
• Purchase of mutual fund units of a single Mutual fund>10 lakhs
• Cash deposit in current account>50 lakhs or more in a FY
• Cash withdrawals from current account>50 lakhs or more in a FY
• Cash deposits in other than current a/c>10 lakhs or more in a FY
• Fixed Deposit>10 lakhs in a FY from a single bank
• Payment for credit card either > 1 lakh in cash or > 10 lakhs by other modes
• Purchase of debentures/bonds>10 lakhs from a single company in a FY
• Purchase of shares of single co.> 10 lakhs in a FY
• Buyback of shares of single listed co>10 lakhs in a FY
• Purchase of foreign currency>10 lakhs in a FY

As can be seen from above, these are exhaustive details which will now be visible at a glance in a single form.

How does this affect you?

• Ease in Return Filing: For starters, these information would help taxpayers and their consultants in ensuring that no head of income is missed out while filing annual tax returns. For instance, details of fixed deposits would ensure that interest from such deposits are not missed to be reported. Similarly, details of sale of immovable properties would keep a check on the fact that capital gains from such sale are offered for tax or in case of losses, same is duly reported and claimed.

• Powerful tool in hands of Tax Officers: However, simultaneously, this would empower the tax officers as well. Form 26AS is regularly perused by officers during the course of assessment proceedings and the officer could easily get details of all major financial transactions during the year from the new form. For instance, earlier only details of purchase of immovable property>50 lakhs was available in the 26AS form, however now the threshold has been lowered to 30 lakhs and would also include details of sale of property. Similarly, purchase of shares or investment in bonds/fixed deposits, earlier escaped the eye of the tax department due to same being routed via non-business accounts, but now the same will be visible at a glance and the officer could very well inquire the source of such investments. Further, with proposed change to include outstanding demands, this would also ensure that no refunds are issued to taxpayers before adjustment of demands against the same.

• Financial Information to Stakeholders: This form could also be a useful tool in hands of stakeholders such as banks, financial institutions and also in M&A transactions. Bankers generally request for form 26AS of borrowers/guarantors before issuing credit facilities as the form acts as an external check on the particulars shown in the return of income. However, now the bankers would also be able to see important details such as outstanding demands, pending litigations etc. which could protect its interests when it comes to assessing contingent liabilities of the borrowers/guarantors. Similarly details such as investments and purchase of properties would also help in validating the particulars furnished in a net wealth statement and also in preventing diversion of loan funds and ensuring a greater check on end use.

• Assessment of Contingencies in M&A Transactions: Similarly, during M&A Transactions, an acquirer would get a greater sense of the contingent liabilities of the acquiree with respect to outstanding tax liabilities and pending proceedings leading to greater transparency in taxation due diligence.

Way Forward

CBDT has recently intimated that the above-discussed information would be first confirmed from the taxpayers wherein they would be able to Confirm or Dispute the information. In case, taxpayer finds same to be incorrect, he can dispute the same on the portal and information will be re-verified and upon confirmation of error, the information would no longer be displayed. In case of correct information, the taxpayer would be expected to confirm the same and in case such information is seen not to be in line with the level of income shown in his return by the taxpayer, the tax department might issue inquiry/scrutiny notices.

All and all, we believe this change is a welcome one which would help in self-assessment and act as a Financial Information aggregator of taxpayers, similar to the CIBIL report usually relied by financial institutions. It would also ensure that tax scrutiny becomes rather faceless and one-click based and that detailed scrutiny is only initiated in rare cases. However, having said that, it is hoped that the information overflow is not used by tax officers to initiate fishing and roving inquiries based on the quantum of credit card bills or investment in mutual funds/FDs or purchase of properties, which would discourage saving and investment by honest taxpayers.