The income tax department has made it mandatory for people who make large transactions but report incomes below the tax exemption limit to file returns, an official order said.

The idea is to expand the oversight of economic activities and ensure that those who undertake large transactions file their returns even if their income is below the basic exemption limit. The basic income tax exemption limit ranges from ₹2.5 lakh to ₹5 lakh a year, depending on the person’s age. The upper limit of ₹5 lakh is applicable for citizens aged 80 years or more.

The Central Board of Direct Taxes (CBDT) said in the Income-tax (Ninth Amendment) Rules, 2022, effective from Thursday, that in certain cases, individuals, proprietorships and professionals have to file income tax returns even if their income is below the tax exemption limit.

These cases include individuals or proprietorships with total sales or gross receipts in business exceeding ₹60 lakh in the previous year, gross receipts from profession exceeding ₹10 lakh in the previous year, and if the aggregate of tax deducted at source (TDS) and tax collected at source (TCS) during the previous year is ₹25,000 or more. However, the order said that for Indian residents 60 years or older, this threshold is ₹50,000 in a savings account deposit.

Also, individuals who have made deposits in a savings bank account of ₹50 lakh or more in the previous year have to file income tax returns even if their taxable income is below the exemption threshold.

This new set of requirements widens the scope of tax return filing obligations where income is below the basic exemption limit. The new conditions are notified under a provision in the Income Tax Act which allows the government to specify in rules the cases where return filing requirements can be mandated.

The Act already insists on return filing by individuals in a few cases, even if their income is below the basic exemption threshold. These are people who have deposited ₹1 crore in a current account with a bank, have spent ₹2 lakh on foreign travel or have spent more than ₹1 lakh on electricity consumption.

Over the last few years, the tax department has scaled up its oversight of transactions by expanding the scope of TDS and TCS provisions, setting limits on cash transactions, and expanding the scope of return filing requirements where people make large transactions. The department has also been exchanging data with other wings of the government, including the Central Board of Indirect Taxes and Customs (CBIC), to effectively monitor transactions and ensure that incomes are not under-reported.

Earlier this month, the department reported a 49% jump in net direct tax receipts after refunds in FY22 to ₹14.1 trillion.