Introduction
With an aim to enhance tax compliance and eradicate black money circulation, the CBDT has implemented a new facility called “ITR Filing Compliance Check” functionality. This was announced on 31st August 2020 to assist Scheduled Commercial Banks (SCBs) monitor the status of tax returns filed by its customers involved in massive cash withdrawal operations. Part of it is making efforts to provide for checking by the Central Recipient Banks as to whether Income Tax returns of the significant cash withdrawals making individuals had made their tax filings, thus in-line with the principles of Income Tax Act,1961.
The idea behind the launch of new functionality of returning large money withdrawal cash withdrawals by entities that failed to file an income-tax return. Mostly such cash transactions are associated with the circulation of unaccounted wealth or black money. Therefore, to tackle the issue, the Finance Act of 2020 had brought substantial amendments to the Income Tax Act and lowered the threshold to trigger tax deduction at source (TDS) on cash withdrawal. From July 1 2020, the TDS threshold for non-filers was reduced to Rs. 20 lakh, with a higher TDS rate of 5% applicable on cash withdrawals exceeding Rs. 1 crore.
The Need for the ITR Filing Compliance Check Functionality
The Income Tax Department had already rolled out a similar functionality for banks and post offices, called “Verification of applicability u/s 194N,” which enables banks to check the applicable TDS rate for cash withdrawals. However, to expand the scope and strengthen compliance, the CBDT introduced the “ITR Filing Compliance Check” functionality, allowing banks to check the ITR filing status of individuals in bulk.
The new tool has been developed to help SCBs check if a customer has submitted his or her income tax return. The functionality is provided to the Principal Officers and Designated Directors of SCBs, who are registered with the Reporting Portal of the Income Tax Department. They can avail this facility only after login through the reporting portal with their credentials.
How the Functionality Works?
After logging in, the portal’s home page will display the link “ITR Filing Compliance Check”. It will be provided only after an input file containing the PANs of the individuals whose ITR filing status must be determined has been prepared. This can be done with the help of a downloaded CSV template found on the portal. With thousands of transactions passing through up to 10,000 PANs every file, there is a very high possibility for the institution to conduct an effective verification procedure.
Once the CSV file is prepared, the bank uploads it to the site. The bank is also required to provide the “Reference Financial Year” so that the results for that specific fiscal year can be calculated. If a bank selects the fiscal year 2020-21, the system will import data for relevant years, such as the years of assessment 2017-18, 2018-19, and 2019-20. While uploading, the status will be “Uploaded”.
Accessing the Filing Status
Once the input file has been processed, the portal gives an output CSV file that will contain the ITR filing status for each PAN that has been included in the input file. This output file will list the PANs along with the masked names of the individuals and their ITR filing status for the last three assessment years. The output file will be downloadable, and its status will change to “Available” once the processing is done.
Download link expires after 24 hours from when the output file is available. So, it is essential for the bank to download the file within this time frame. Once the file has been downloaded, the status will change to “Downloaded,” and the link will not be accessible anymore.
API Integration for Automation
To make matters easier, the Income Tax Department also offers an API-based exchange option for banks that want to automate and integrate this process with their core banking systems. This will easily integrate ITR compliance checks into existing infrastructure such that banks can verify customers’ tax compliance status without manual intervention.
Security and Data Protection
Banks have to implement adequate measures for protecting this information from any kind of unauthorized access or misuse. They also need to satisfy the compliance requirements about handling such information provided by the government in a secure manner consistent with established protocols for cyber security.
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Conclusion
CBDT introduces a new “ITR Filing Compliance Check” capability that Scheduled Commercial Banks can avail of as an efficient and automated tool to verify the filing status of the income tax returns of their customers. This system, once integrated into the operations of banks, can help play a critical role in ensuring that large cash withdrawals are made by tax-compliant individuals.
Read Related Blog Post- A Step-by-Step Guide to Filing Your Income Tax Return
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