Dealing in high-value cash transactions will get you in touch with the notice of the Income Tax Department or on the radar of tax authorities. Banks, mutual fund houses, brokerages, and property registrars all indulge in cash-related transactions. These establishments must report high-value transactions to the Income Tax Department if they exceed a certain threshold. The Income Tax Department has arrangements with numerous government agencies to acquire financial records from individuals who engage in big-ticket transactions but do not report them on their tax filings. Here are some examples of transactions that may put you on the tax authorities' radar and result in tax notice as well:
1. Making deposits in bank FD
Cash deposits in bank FDs should not exceed Rs 10 lakh. It is also not recommended for a bank depositor making a cash deposit in a bank FD account to exceed the Rs 10 lakh cap. The Central Board of Direct Taxes (CBDT) has declared that banks must disclose if an individual deposits more than the stated limit in one or more fixed deposits.
2. Making deposits in savings bank accounts
An individual's cash deposit cap in a bank account is Rs 10 lakh. If a savings account holder deposits more than Rs 10 lakh in a financial year, the income tax department may issue an income tax notice. Since cash deposits and withdrawals in a bank account exceeding Rs 10 lakh or more in a financial year must be disclosed to the tax authorities, you must be cautious if you surpass the stated limit. In the case of current accounts, the cap is Rs 50 lakh or more.
3. Paying credit card bills
According to the CBDT, payments of Rs 1 lakh or more in cash against credit card bills must also be reported. In addition, if a payment of Rs 10 lakh or more is paid in a fiscal year to settle credit card bills, the payment must be disclosed to the tax department. One of the most important considerations is the income tax that applies to credit card transactions. Be careful you don't go over your credit card spending cap, since the Tax authority keeps track of credit card transactions as your credit card details are linked with your PAN Card, and thus it is managed online by the government. Any big-ticket transaction must be disclosed while filing an ITR. If you use your credit card on any high-value transactions, make sure to disclose them on Form 26AS while filing your ITR to avoid getting an income tax notice.
4. Purchase or sale of an immovable property
The property registrar should have to disclose any purchase or sale of immovable property for an amount of Rs 30 lakh or more to the tax authorities. The property purchase/sale transaction must be reported on your Form No.26AS. Well, if you're buying or selling a property for more than Rs.30 Lakhs, you're on the Income-tax Department's radar. The Income Tax Department may examine whether the buyer has reported the income on his or her tax return to offset the investment made in the buying of a property, and whether the seller has properly reported capital gains and tax.
5. Shares, mutual funds, debentures and bonds related cash-transactions
Individuals who invest in mutual funds, stocks, bonds, or debentures must ensure that their cash transaction in these investments does not exceed Rs 10 lakh. Failure to adhere to this cash transaction cap may result in the tax authority auditing your most recent tax return (ITR). The I-T department has created an Annual Information Return (AIR) statement of financial transactions to keep track of high-value transactions of taxpayers. Tax officials will collect details against unusual high-value transactions on this basis in a financial year. If any investment or transaction has been classified as a high value transaction, verify the AIR section of your Form 26AS. PART-E of your Form 26AS includes details about high-value financial transactions.
6. Sale of foreign currency and including purchase of foreign exchange
An amount of Rs. 10 Lakh or more in a fiscal year for receipt by any individual for the sale of foreign currency, along with any credit in such currency to a foreign exchange card, or payment in such currency via a debit or credit card, or issuance of a traveller's cheque, draft, or other instrument, must be declared to the income tax department.