Six Types of High Value Cash Transactions That May Trigger Towards a I-T Notice on You
The Income Tax Act imposes restrictions on cash transactions above specified limits, aiming to combat black money and tax evasion while promoting transparent business practices. These limitations are outlined in various sections, including Section 40A (3) and Section 43, which address fixing of limit in cash payments, while Section 269SS and Section 269ST focus on fixing the limit in cash receipts. Additionally, Section 269T deals in limiting the repayment of specific loans and deposits in cash. The Income Tax Department maintains a vigilant watch on significant transactions to curb tax evasion and prevent money laundering, potentially leading to legal consequences for individuals.
In recent years our government has taken several initiatives to promote cashless transactions. In this era dominated by online transactions, some individuals still prefer the traditional method of cash dealings. There’s a common misconception among people that large cash transactions go unnoticed by the Income Tax Department. However, it’s essential to debunk this myth, as any transaction, whether online or offline, can attract the attention of tax authorities.
Various cash-related transactions, including those conducted through banks, mutual fund companies, brokerages, and property registrars, are closely monitored by tax authorities. Financial institutions bear the responsibility of reporting cash transactions surpassing specific thresholds to the tax department, ensuring a robust system that enhances transparency and compliance in financial dealings.
In this article, we will shed light on 6 such key transactions that might prompt the Income Tax Department to issue a notice on you.
Cash Deposits in Fixed Deposits
Similar to bank account transactions, the CBDT rules apply to fixed deposits as well. Depositing over Rs 10 lakh in FDs during a financial year may trigger an investigation into the source of the funds by the Income Tax Department.
Cash Deposits in Bank Accounts
The Central Board of Direct Taxes (CBDT) mandates that any cash deposit exceeding Rs 10 lakh in a financial year is reported to the Income Tax Department. This reporting applies to accumulative deposits in one or more accounts of the same account holder. If you find yourself depositing an amount beyond this threshold, be prepared for the Income Tax Department to inquire about the source of the funds.
Acquisition of Foreign Currency
In adherence to financial regulations, any individual, Hindu Undivided Family (HUF), or partnership firm engaging in foreign exchange transactions of ₹10 lakh or more within a financial year is obligated to report such transactions to the Income Tax Department. It’s noteworthy that this reporting requirement does not extend to companies. The scope of reporting encompasses various foreign exchange activities, including the purchase of currency notes and coins, acquisition of travellers’ checks and foreign exchange cards, as well as the use of debit or credit cards for foreign currency payments.
The entities facilitating these transactions, such as banks, are mandated to inform the Income Tax Department, thereby contributing to the prevention of tax evasion and money laundering. This reporting mechanism serves as a deterrent, enabling the Income Tax Department to scrutinize potential cases of underreported income and suspicious foreign exchange dealings, enhancing the chances of triggering towards issue of a notice from I-T department.
Investments in Shares/Mutual Funds/Debentures/Bonds in Cash
While investing in financial instruments is a popular choice of many individuals, using a substantial amount of cash to make transactions in shares, mutual funds, debentures, or bonds can raise red flags. Any transaction exceeding Rs 10 lakh in these investment options will be reported to the Income Tax Department, prompting inquiries about the source of the funds.
Huge Credit Card Bill Payments
Credit card usage is widespread now a days, and individuals often make substantial bill payments by use of credit cards. However, if your monthly credit card bill surpasses Rs 1 lakh, and you intend to make a cash payment, the Income Tax Department may inquire about the source of funds. Additionally, any payment exceeding Rs 10 lakh in a financial year, whether made online or offline, might attract scrutiny.
Making Property Related Transactions in Cash
Real estate transactions involving large sums of cash, especially in cities and Tier-2 cities, are commonplace. However, if you engage in a cash transaction of Rs 30 lakh or more while purchasing a property, the Income Tax Department will likely be alerted. The property registrar will inform the department, leading to inquiries about the source of the funds.
Conclusion
In conclusion, it’s crucial to understand that the Income Tax Department closely monitors both online and offline transactions. Adhering to the prescribed limits and being transparent about the source of funds can help individuals avoid unnecessary inquiries and notices from tax authorities. Stay informed and compliant to ensure a smooth and hassle-free financial experience.
To know about Income Tax rules on Cash Transaction Limits CLICK HERE
To know the I-T rule to determine NRI status in India CLICK HERE
READ MORE
I-T Dept Intensified Scrutiny on NRIs and Asks for Number of Days Stay in India
Budget 2024 May Bring a Pleasant Surprise for the Personal Income-Tax Payers