Income Tax: While digital payments have become the norm, many still prefer cash transactions for their simplicity and convenience. However, engaging in significant cash transactions may attract the attention of the Income Tax department, which may lead to possible scrutiny. It is essential to be aware of these transactions to ensure compliance with tax regulations and avoid any unwanted notifications.
Cash Deposits into Bank Accounts:
According to the Central Board of Direct Taxes (CBDT), any cash deposit exceeding Rs 10 lakh in a financial year, whether in a single account or multiple accounts, is reported to the Income Tax Department. Such deposits raise questions about the source of funds, potentially prompting inquiries from tax authorities.
Fixed Deposits (FDs):
As with bank account deposits, deposits of more than Rs 10 lakh in one or more FDs in a financial year can trigger an inquiry from the Income Tax department. Tax authorities may inquire about the source of funds if there is any doubt about the nature of the transaction.
High-Value Property Transactions:
In case of property purchase, cash transactions above Rs 30 lakh have to be reported by the property registrar to the income tax department. Such significant transactions raise red flags and may prompt tax authorities to investigate the source of the funds involved.
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Credit Card Bill Payments:
Payments of Rs 1 lakh or more in cash per credit card bill may attract the attention of the Income Tax department. Additionally, incremental payments of more than Rs 10 lakh in a financial year may raise concerns about the fund’s legitimacy, leading to inquiries from tax authorities.
Investments in Financial Instruments:
Cash transactions exceeding Rs 10 lakh for purchase of shares, mutual funds, debentures or bonds are reported to the Income Tax Department. Tax authorities may seek clarification on the source of funds used for such investments to ensure compliance with tax regulations.
It is crucial for individuals involved in these high-value cash transactions to maintain proper documentation and transparency regarding the source of funds to avoid potential tax implications. Failure to provide a satisfactory explanation to the Income Tax Department may result in further investigation, fines or legal consequences.
In conclusion, while cash transactions offer convenience, they also carry the risk of attracting unwanted attention from tax authorities. Being aware of reporting thresholds and ensuring compliance with tax regulations is essential for individuals to avoid income tax notices and maintain financial integrity.