Income Tax Alert : Filing income tax returns is a crucial responsibility for every taxpayer. However, certain financial transactions can trigger scrutiny from the Income Tax Department. If you are not careful, you might receive a tax notice, leading to unnecessary legal and financial complications. To help you stay compliant, we have listed seven transactions that can put you on the tax authorities’ radar. Avoiding or properly reporting these transactions will save you from potential trouble.
1. Large Cash Deposits in Your Bank Account
The government keeps a close eye on large cash transactions, particularly in savings and current bank accounts. If you deposit cash beyond a certain limit, your bank is required to report it to the tax authorities.
Cash Deposit Thresholds That Trigger Tax Notices
| Transaction Type | Limit That Triggers Reporting |
|---|---|
| Savings Account | ₹10 lakh in a financial year |
| Current Account | ₹50 lakh in a financial year |
| FD Cash Deposits | ₹10 lakh in a financial year |
If you deposit large sums of cash frequently, ensure that you can explain the source of funds. Misreporting or failure to report such transactions can lead to a tax notice or even penalties.
2. High-Value Credit Card Payments
Making large payments toward your credit card bills can attract the attention of the Income Tax Department. Banks are required to report high-value credit card transactions, and if these payments do not match your declared income, you may receive a notice.
Credit Card Payment Reporting Limits
| Payment Mode | Limit for Reporting |
|---|---|
| Single transaction | Above ₹1 lakh |
| Annual total payment | Above ₹10 lakh |
If your credit card spending is disproportionate to your declared income, ensure you have supporting documents to justify the source of funds.
3. High-Value Property Transactions
Buying or selling real estate involves significant financial transactions, and the tax authorities closely monitor these activities. Any real estate purchase or sale beyond a certain threshold must be reported to the Income Tax Department.
Real Estate Transaction Reporting Limits
| Transaction Type | Limit for Reporting |
|---|---|
| Property Sale | Above ₹30 lakh |
| Property Purchase | Above ₹50 lakh |
| Rent Received | Above ₹2.4 lakh per year |
If you buy or sell property, ensure that you report the transaction correctly in your income tax return. Also, make sure to deduct and deposit TDS (Tax Deducted at Source) where applicable.
4. Investing in Shares or Mutual Funds Beyond Limits
Investments in stocks and mutual funds are monitored by the tax authorities to track unaccounted income. If your investments exceed a specific threshold, it will be reported.
Investment Reporting Limits
| Investment Type | Reporting Threshold |
|---|---|
| Equity Shares | ₹10 lakh per financial year |
| Mutual Funds | ₹10 lakh per financial year |
| Bonds & Debentures | ₹10 lakh per financial year |
Ensure that all your investments align with your declared income to avoid tax scrutiny.
See more : SBI Investment Scheme
5. Large Cash Withdrawals from Banks
Withdrawing large amounts of cash from your bank account can also put you on the tax department’s radar. Banks must report withdrawals exceeding the prescribed limits.
Cash Withdrawal Reporting Limits
| Account Type | Limit for Reporting |
|---|---|
| Savings Account | Above ₹1 crore per year |
| Current Account | Above ₹2 crore per year |
Frequent large cash withdrawals without valid justification can raise suspicion and lead to a tax inquiry.
6. Accepting or Repaying Large Loans in Cash
Taking or repaying loans in cash beyond a certain amount is not only risky but also illegal under income tax rules. Such transactions are strictly monitored.
Loan Cash Transaction Limits
| Loan Transaction Type | Legal Limit |
|---|---|
| Loan Taken in Cash | Above ₹20,000 (Illegal) |
| Loan Repaid in Cash | Above ₹20,000 (Illegal) |
To avoid tax penalties, ensure that all loan transactions are conducted through banking channels.
7. High-Value Foreign Exchange Transactions
If you engage in high-value foreign exchange transactions such as foreign remittances, foreign travel expenses, or investments in overseas assets, you may attract tax scrutiny.
Foreign Exchange Transaction Limits
| Transaction Type | Limit for Reporting |
|---|---|
| Foreign Remittances | Above ₹7 lakh per financial year |
| Foreign Travel Expenses | Above ₹2 lakh per trip |
| Foreign Asset Investments | Any amount |
Taxpayers must report their foreign income and assets under the Liberalized Remittance Scheme (LRS) to avoid legal consequences.
Avoiding unnecessary tax scrutiny is simple if you ensure that all your financial transactions comply with income tax regulations. Always keep documentary proof of large transactions, report your income accurately, and stay within legal limits for cash transactions. Being aware of these high-risk transactions will help you stay on the right side of the law and prevent any unwanted tax notices.
If you receive a tax notice, do not panic. Respond with valid explanations and supporting documents to resolve the issue promptly. Staying informed about tax rules will help you maintain financial discipline and peace of mind.