In a move to enhance transparency and ensure accurate reporting of financial transactions, banks have begun to report credit card and foreign exchange (forex) spends separately in the Annual Information Statement (AIS). This move aims to provide taxpayers with a comprehensive overview of their financial activities, making it easier to reconcile transactions when filing income tax returns (ITR).
The change comes as the Income Tax Department receives automated information on individuals’ financial transactions from various reporting entities, including banks. Previously, banks did not distinguish forex spends as a separate category under credit card transactions. However, starting this financial year, banks have started categorizing total forex spends distinctly from total credit card spends.
This enhanced reporting is particularly relevant for individuals who travel abroad, make purchases from foreign websites, send remittances abroad, or buy foreign currency. The separate reporting of these transactions ensures that all relevant financial activities are accurately captured in the AIS.
Mandate for banks
Banks have been mandated to report transactions through debit, credit, and forex cards through two primary sources: Tax Collected at Source (TCS) filings on account of Liberalised Remittance Scheme (LRS) transactions and Specified Financial Transactions (SFT) filings by various reporting entities. Under LRS, banks collect TCS on remittances above Rs 7 lakh in a financial year, with rates varying based on the nature of the expense. For instance, medical treatment or education-related remittances are taxed at 5%, while other remittances are taxed at 20%.
The separate reporting of forex transactions addresses the need for precise data collection and aligns with recent regulatory changes. IOt also highlights the importance for taxpayers to ensure that all their financial transactions are accurately accounted for in their ITR. Any discrepancies between the AIS and the filed ITR may prompt the tax department to seek explanations, underscoring the necessity for meticulous record-keeping and accurate reporting.
The inclusion of detailed forex spend data in the AIS reflects the government’s commitment to improving tax compliance and enhancing the accuracy of financial information.
