income tax returns | capital gains: Checking tax evasion: From this financial year, taxman will have direct access to capital gains data – The Economic Times

Clipped from: https://economictimes.indiatimes.com/news/economy/finance/taxman-to-access-capital-gains-data-directly-from-fy22/articleshow/81904476.cmsSynopsis

A notification issued by the I-T department on March 12 has included stock exchanges, depositories, clearing corporations and registrars to an issue and share transfer agents among intermediaries that will be required to submit information on capital gains made on listed securities and mutual funds.

Beginning this financial year, the income tax department will have direct access to details of capital gains made, dividends received and interest earned by investors, which is expected to plug under reporting or non-declaration of such income.

A notification issued by the I-T department on March 12 has included stock exchanges, depositories, clearing corporations and registrars to an issue and share transfer agents among intermediaries that will be required to submit information on capital gains made on listed securities and mutual funds.

It requires companies to provide details of dividends paid while banks, post offices and nonbanking finance companies (NBFCs) must submit information on interest earned.

This notification came into force with immediate effect, which means the tax department will have access to information for the just concluded FY21, which can be matched with income tax returns filed by taxpayers. The tax department will also share this information with taxpayers.

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Finance minister Nirmala Sitharaman had announced in her budget speech in February that to further ease the filing of returns, details of capital gains from listed securities, dividend income, and interest from banks, the post office, etc. will also be pre-filled in tax forms for taxpayers.

Long-term capital gains on shares and mutual funds in excess of ₹1 lakh a year is taxable. Dividends, interest and short-term capital gains are added to income and taxed at the marginal rate applicable to the tax payer. So far, taxpayers had been required to compute and declare capital gains, dividend income and interest earned along with any other untaxed income while filing tax returns.

‘Investors will Need to be Cautious’
There was no cross-referencing of this information, which resulted in under reporting and tax evasion. In exceptional cases, the tax department used to ask Sebi for data on select individuals. But this was mostly confined to large transactions where the tax department felt the market entities had understated their gains.

In the case of individuals, only highly suspect filings used to be taken up for further scrutiny, say tax experts.

Last year, the IT department had signed a data-sharing agreement with Sebi to access details of transactions by traders, particularly those red flagged by the regulator. “The tax department can now verify the income reported in tax returns with this data and issue notice in case of discrepancies,” said Sumit Mangal, partner, L&L Partners. “The tax department can also track cases where investors generated substantial returns in the IPO (initial public offer) frenzy but did not report such gains in their tax returns.”

Stock market investors will have to be cautious about capital gains reported in their name, said Dhaval Jariwala, partner, PNDJ & Associates, a tax consultancy firm.

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