Before filing your IT return, know about AIS/TIS, SFT and Cash Transaction Limits

In continuation of my earlier post regarding Annual Information Statement (AIS), I would like to share insights regarding Specified Financial Transactions (SFT), Tax Information Summary (TIS), cash transaction limits and how to report SFT.

For your information, the government has also introduced TIS along with AIS for those filing income tax returns. TIS means Taxpayer Information Summary. TIS is the summary of AIS. Consolidated totals of income under various heads is shown in TIS. AIS is more detailed (eg. Bank account type and no. wise details are shown in AIS whereas TIS shows Total Interest Income)

As per Section 285BA of the Income Tax Act, 1961 w.e.f 01-04-2015,https://cmamanjulagutti.blogspot.com/2022/06/httpscmamanjulagutti.blogspot.it-return-AIS-TIS-SFT-HighValueCashtrn.html the following persons are specified entities who are required to furnish a reportable transaction registered /recorded/ maintained by them during the financial year to the income-tax authority. Predominantly, the following transactions are covered as “Specified Financial Transactions“.

Cash Transaction	Reporting person
Cash payments in DD or pay orders or any other instruments in excess of Rs 10 lakhs	Banks including co-operative banks
Time deposits in excess of Rs 10 lakhs	Banks including co-operative banks, Post Office, Nidhi Company, NBFCs
Purchase or sale of immovable property in excess of Rs. 30 lakhs	Inspector General, Registrar or Sub-registrar
Investments in shares, mutual funds, bonds, debentures in excess of Rs. 10 lakhs	RTA, brokerage houses, Mutual fund houses
Purchase or sale of foreign currency in excess of Rs. 10 lakhs	RBI

Specified Financial Transactions pertaining to a Financial Year will get reflected in “Part E” of your new 26AS. Thus, SFT is a tool for the government to identify the transactions that can attract taxes and makes it easier for the government to check whether the taxes are paid / returns are filed by the respective taxpayers.

In nutshell, the Income Tax Department has settlements with multiple government agencies to obtain financial records of individuals. Different entities like banks, brokerages, mutual fund houses, property registrars are required to report to the Income Tax Department all the financial transactions including the high value cash related transactions of the individuals.

Tax payers need to report the high value cash transaction to the Income tax department while filing IT return and also report to the Income tax Department via AIS feedback.

If the high value cash transaction or any other income e.g. Interest, dividend, etc. reflecting in Specified Financial Transaction (SFT) of Annual Information Statement (AIS) or Tax Information Summary (TIS) is incorrect, the tax payer can mention it as incorrect or partially incorrect in the AIS feedback. 

If the SFT transactions mentioned in AIS are correct, the tax on each SFT is to be calculated accurately and paid before filing your IT return to avoid notices and penalties.

The following are the limits of cash transactions:

Transaction	Period	Cash Limit
CASH DEPOSIT
Bank Savings Account	On a Single Day	100000
Bank Savings Account	Financial Year	1000000
Bank Fixed Deposit	Financial Year	1000000
Bank Current Account	Financial Year	3000000
CASH PAYMENT FOR CREDIT CARD BILL
Credit Card Bill Payment	Single Payment	100000
Credit Card Bills Payment	Financial Year	1000000
REAL ESTATE SALE OR PURCHASE	Per Transaction	3000000
INVESTMENT IN SHARES, MUTUAL FUNDS, DEBENTURES, BONDS	Financial Year	1000000

 

In case of exceeding the above limits, the Income Tax Department may send notice to the assesse.

About Annual Information Statement-the new Form 26AS

 

Annual Information Statement (AIS) is an extension of the earlier form 26AS. Annual Information Statement (AIS) is nothing but a statement of financial transactions, furnished to it by various entities in respect of a taxpayer, collated by the tax department based on the PAN. These entities includes banks, NBFCs, post office, registration offices, regional transportation office, authorized dealers dealing foreign exchange, stock exchanges, mutual funds, companies issuing shares and debentures, RBI and all the taxpayers who are liable to deduct and collect tax at source.

The objective of the AIS is

ü  display complete information to the taxpayer and promote voluntary compliance

ü  to promote transparency

ü  to simplify the tax return filing process,

ü  deter non-compliance

CBDT vide Notification dated May 28, 2020 has amended Form 26AS vide Sec 285BB of Income Tax Act, 1961 r.w.r.114-I of Income Tax Rules, 1962 w.e.f. 01.06.2020.

It provides complete information about a taxpayer for a particular financial year. It contains information about taxpayers’ incomes, financial transactions, tax details, income-tax proceedings, etc. The earlier Form 26AS contained only information about TDS, TCS and taxes paid by the taxpayer.

The information available in AIS is displayed in Part A and Part B.

Part A contains the general information about a taxpayer

·         PAN,

·         Aadhaar,

·         Name,

·         Date of Birth,

·         Mobile Number,

·         E-mail Id, and

·         Address

Part B contains the comprehensive information of all financial transactions of the taxpayer provided by the entities, for the selected financial year based on his or her PAN details. The information in Part B is divided into the following categories:

• TDS/TCS Information:  It is similar to the information displayed in Form 26AS
• SFT Information: This section includes information received from banks and NBFCs with regard to Special  Financial Transaction (SFT) undertaken by the taxpayer during the year like purchase or sale of immovable property.
• Payment of Taxes: It shows taxes paid by the tax payer along with the type of payment (advance tax, self-assessment tax, interest, etc. and details of challan-challan no., date, etc.
• Demand and Refund: It displays the outstanding demand of tax by department along with quantum and current status.
• Pending Proceedings
• Completed Proceedings
• Other Information in relation to sub-rule (2) of rule 114-I

 The new Annual Information Statement (AIS) will include the information of the following key categories:

1.       Salary

2.       Rent received and paid

3.       Dividend

4.      Interest from bank accounts or other deposits, bonds or government securities, infrastructure debt funds, etc. 

5.       Interest from income tax refund

6.       Rent on plant & machinery

7.       Winnings from lottery or crossword puzzle, Horse Race

8.       Receipt of accumulated balance of PF from employer 

9.       Income and long-term capital gain from units by an offshore fund, shares, bonds, etc. 

10.   Income of foreign institutional investors from securities

11.   Insurance commission

12.   Receipts from life insurance policy

13.   Withdrawal of deposits under national savings scheme

14.   Receipt of commission etc. on sale of lottery tickets

15.   Income in respect of units of non-resident

16.   Payment to non-resident sports person or sports association

17.   Income from investment in securitization trust

18.   Purchase and sale of land or building, immovable property, or vehicle

19.   Purchase and sale of securities and units of mutual fund 

20.   Purchase of time deposits

21.   Off market debit and credit transactions

22.   Business receipts and expenses

23.   Any other Miscellaneous payment

24.   Cash deposits, withdrawals, and payments

25.   Outward foreign remittance/purchase of foreign currency 

26.   Receipt of foreign remittance

27.   Foreign travel

28.   Debit/Credit card 

29.   Income distributed by Business trust, or Investment Fund

All transactions in these categories would be reported by the respective authorities, despite the value of the transaction. 

The above list is just indicative. It is your overall financial profile and will be fine-tuned to include more categories.

Other features of new AIS are:

• Use of Data Analytics to populate PAN in non-PAN data for inclusion in AIS eg. In case no PAN /valid PAN is available for the transaction, PAN will be populated based on Aadhaar or other key attributes
• Deduplication of information and generation of a simplified Taxpayer Information Summary (TIS) for ease of filing return
• In case of any discrepancy in the information furnished in AIS, the taxpayer will be able to submit online feedback on the information displayed in AIS and also download information in PDF, JSON, CSV formats.
• AIS Utility will enable taxpayer to view AIS and upload feedback in offline manner.
• AIS Mobile Application will enable taxpayer to view AIS and upload feedback on mobile.

If the taxpayer feels that the information is incorrect, relates to other person/year, duplicate etc., a facility has been provided to submit online feedback.

Any transaction reported in AIS which the taxpayer has not executed must be reported online and modified.

However, if you have already filed your income tax return and have found additional info in AIS, you can revise it based on the information displayed in AIS.

The followings are the steps to access the AIS information online:

Step 1: Log in to the Income-tax e-filing website at https://www.incometax.gov.in/

Step 2:  After login, click on Services > Annual Information Statement (AIS)

Step 3:  A message shall appear that will prompt you to click on ‘proceed’ to redirect to AIS homepage.

Step 4: You will have to select either of the two options: Taxpayer Information Summary (TIS) or Annual Information Statement (AIS). On the web page tab that opens, select 'AIS'
It will also show the financial year for which AIS is being downloaded, your PAN and name.

Step 5: Select the download Arrow on the AIS box. A pop-up will appear asking you to select the format for downloading AIS. The statement can be downloaded in PDF format and JSON utility.

Why Strategic Cost Management is Important to a Business Enterprise

Traditionally, business enterprises thought of cost control and cost reduction as effective techniques to reduce expenses using budgeting process and thereby increase their profits. Here, I will delve into its limitations and the growing importance of strategic cost management for managing costs as well as for driving growth of the organization and its ability to constantly improve the quality of products offered to customers.

Cost Control is a technique or process which measures variances from the cost baseline/budgeted costs/standard norms, provides analytical reports to the management for taking effective corrective action and thereby to achieve minimum cost overruns/reduce the costs. Procedures are applied to monitor expenditures, measure and evaluate the performance.

Cost Reduction is a technique which we used to save the unit cost of the product without compromising its quality. Cost reduction is the process of decreasing a company's expenses to maximize profits. It involves identifying and removing expenditures that do not provide added value to customers while also optimizing processes to improve efficiency. Cost reduction typically focuses on generating short-term savings.

Cost reduction may lead to cost cutting which has an adverse implications on the organization performance when viewed from a long term basis. For example, substitution with low quality raw materials may reduce the product quality and employee layoff may impact the employee morale adversely.

Cost cutting refers to measures implemented by a company to reduce its expenses and improve profitability. Cost cutting measures are typically implemented during times of financial distress for a company or during economic downturns.  This is a very defective approach and should be used as a last resort.

Strategic cost management (SCM) is a cost management technique that aims to reduce costs and boost the strategic position of an organization. It’s the process of combining cost information with the structure of decision-making to reinforce the overall business strategy. Cost is measured and managed to align it with the organization’s business strategy. It is seen as managing costs as well as driving growth of the organization. Business leaders see it as a strategic initiative that is part of a larger transformation process.

The primary importance of strategic cost management lies in its ability to constantly improve the quality of products offered to customers. To reduce heavy cost failure, an organization must implement strategic cost management in the initial stages of production.

Importance of strategic cost management:

   

• SCM improves the overall position of an organization
• SCM can be used to analyze cost information and achieve sustainable competitive advantage  by developing various measures 
• It offers a better understanding of an organization’s overall cost structure to gain a competitive advantage in a market

 Traditional Cost Management vs. Strategic Cost Management

	Traditional     Cost Management	Strategic Cost Management
Concept	Short term concept	Long term concept
Focus	Internal	Both internal and external.
Perspective	Value-added	Value chain
Cost driver concept	Based on volume of the product.	Each value activity has a separate cost driver. So, not based on volume but on activities associated with the manufacturing of the product.
Cost analysis-Objective	Score keeping, attention directing and problem solving without regard to the strategic context	Strategic positioning of the organisation either by-Cost leadership or product differentiation.
Primary Objective	Cost reduction	Cost control plus cost reduction, Value improvement and Revenue enhancement at the same time.
Utilisation of cash flow generated	Increase cash flow for working capital	Increase cash flow for investment opportunities.
Management responsibility	Risk-averse approach	Risk taking approach and ability to adapt itself with changing environment.

 

The cost management techniques should be such that they improve the strategic position of a business apart from focusing on controlling costs. The basic aim of Strategic Cost Management is to help the organization to achieve the sustainable competitive advantage through product differentiation and cost leadership.

Cost management simultaneously improves the strategic position of the organization while reducing the costs.  It must cover all aspects of production and delivering the product, the supply of purchased parts, the design of products and the manufacturing of these products. So, it is inherent to each stage of the life cycle the product, i.e. during the development, manufacturing, distribution, and during the service lifetime of a product. It is important to include strategic cost management at the early stages of a product development process to reduce high failure costs. Life cycle costing is a time-consuming process but it can uncover costs that can ease the decision-making process.

To achieve the above, instruments for strategic cost management are:

1.      Activity Based Costing
2.    Bench-marking
3.    Target Costing
4.     Value Engineering
5.     Value Chain Analysis
6.    Total Quality Management

Activity Based Costing

Activity-based costing (ABC) is a costing method that identifies activities in an organization, determines cost of each activity based on resources consumed during the relevant period and assigns the cost of each activity to all products and services according to the product consumption by or customer use of that activity.

Bench Marking

Benchmarking is the practice of comparing business processes and performance metrics to industry bests and best practices from other companies. The information collected about a company’s own processes analysed in relationship to the best-in-class practices provides insight into the actions the company can take to improve its performance. The company processes are improved to the level of performance of its competitors or even reach to a better level

Target Costing

In target costing method, setting targets for costs based on the market conditions. First step is to determine the product selling price by analysing the market conditions and then determine the target cost of the product according to their desired profit margin.

Target Cost = Selling Price – Desired Profit Margin

In industries such as FMCG (Fast Moving Consumer Goods), construction, healthcare, and energy, competition is so intense that prices are determined by supply and demand in the market. Producers can’t effectively control selling prices and hence focus on controlling costs by setting up target cost.

Goal-oriented costing system focuses on the design stage and requires the participation of all specialized units

Value Engineering

Value engineering is a design engineering technique involving critical examination and analysis of the design of a component with reference to its functional value. The purpose of value engineering is eliminating or modifying any factor that leads to the imposition of unnecessary costs, without hurting the core and essential functions of the system. Value engineering is the continuous improvement of design and implementation and it is not merely a program to reduce costs, but is a way to maximize the value of designs

Value Chain Analysis

Value chain analysis is a strategy tool used to analyze internal firm activities. Its goal is to recognize, which activities are the most valuable (i.e. are the source of cost or differentiation advantage) to the firm and which ones could be improved to provide competitive advantage. If it competes through cost advantage, it will try to perform internal activities at lower costs than competitors would do. When a company is capable of producing goods at lower costs than the market price or to provide superior products, it earns profits.

 Total Quality Management

Total quality management technique is useful for identification of internal and external failure factors in the companies. Total quality management (TQM) is the continual process of detecting and reducing or eliminating errors in manufacturing, streamlining supply chain management, improving the customer experience, and ensuring that employees are up to speed with training. TQM is considered a customer-focused process that focuses on consistently improving business operations

Other Tools

For finding the precise systems of measurement of the cost, in-time production system and kaizen costing are useful tools for manufacturing companies. In-time production system is a system based on the volume of demand. In this system, a piece of product will be purchased or produced only when a sign of its consumer is received. This prevents the accumulation of inventory in workstations. Among the main objectives of this system we can mention improvement of quality and increase in productivity with an emphasis on the kaizen concept.

Along with the above mentioned cost management strategies and tools, the following marketing strategies also help in managing costs:

•        Bundling of products or services and package it as single product or service
• .     Selling on E-Commerce platform

There are four stages towards the development of cost management systems in the organization.

 First and second stage: The cost management systems are basic transaction reporting systems. Once the transaction reporting systems are implemented, the focus shifts to external financial reporting in which usefulness of cost management is limited as financial reporting is for external stakeholders and gives an overall picture of the company and its business.

Third stage: The cost management systems track key operating data and develop more accurate and relevant cost information for decision making and hence, there is the development of the cost management information system.

Finally Fourth Stage: Strategically relevant cost management information is an integral part of the management information system which is fully integrated with other management systems and a part of the overall organizational strategy. This requires the identification of the critical success factors of the organization and the use of analytical, forward-looking decision support. Critical success factors are the measures of those aspects of the organizational performance which are essential to its competitive advantage and, hence, to its success. Many of these critical success factors are financial, but many are non-financial.

Strategic cost management needs the support of employees, management as well as information technology because effective and timely communication is a prerequisite for implementing it.

In a nutshell, the meaning of strategic cost management isn’t cost control but a method to use the information for efficient managerial decision-making. The fundamental objective is leveraging cost leadership and product differentiation and gaining a sustainable competitive advantage. Moreover, successful strategic cost management is required to help the organization to develop and identify superior strategies which produce a sustainable competitive advantage. Competitive advantage is creating better customer value for the same or lower cost than offered by competitors or creating equivalent value for lower cost than offered by competitors. Customer value is the difference between what a customer receives and what the customer gives up. What customer receives includes such things as product functionality (features), product quality, reliability of the delivery, delivery response time, image, and reputation. What customer gives up or sacrifice includes product price, time required to learn to use the product, operation cost, maintenance cost, and disposal cost. Strategic cost management is required to influence the attributes associated with the dimensions of customer value (decrease the customer sacrifice and improve the customer receives) in order to help the organization increase customer value and therefore improve the strategic positioning.