Taxpayers should be aware that the Income Tax Department monitors high-value cash transactions exceeding a certain limit. Not disclosing these transactions in your Income Tax Return (ITR) could lead to a notice from the tax authorities.

Major cash transactions, including bank deposits, mutual fund investments, property deals, and share trading, are tracked by the IT Department.

If these transactions surpass the specified limit, it is advisable to report them to the IT department to avoid receiving a notice. Additionally, taxpayers often make mistakes during the income tax return filing process, which can also result in their ITR being rejected or getting an income tax notice.

Advertisement

To help monitor high-value transactions, the Income Tax Department has set up agreements with various government agencies and financial institutions, making it easier to access these records.

Cash Payments

Banks and cooperative societies are required to report transactions involving cash payments for purchasing bank drafts, pay orders, or banker’s cheques.

Bank Account Transactions

Any transaction exceeding Rs 10 lakh in a savings account or Rs 50 lakh in a current account within a financial year must be reported to the Income Tax Department. Deposits over Rs 2 lakh in a single transaction are also monitored.

Credit Card Payments

Credit card payments exceeding Rs 1 lakh in cash per year and non-cash payments exceeding Rs 10 lakh on all credit cards are subject to inspection.

The Income Tax Department can issue notices for high-value transactions, including domestic business-class air travel, tuition or donation payments, and purchases of jewelry, white goods, paintings, marble, and electricity expenses over Rs 1 lakh in one fiscal year.

Fixed Deposit

With the recent rise in fixed deposit (FD) rates, these investments have become more attractive for those seeking stable and predictable income.

Make sure that any cash deposits over Rs 10 lakh during a single financial year (April 01 to March 31) need to be reported to the Income Tax Department (ITD). This applies irrespective of how the funds are utilized, including for fixed deposits.

Also Read: ITR Filing AY 2024-25: Documents to Keep Ready While Filing Your Income Tax Return

Monitoring multiple deposits across various bank accounts is necessary. Even if you split a cash deposit into smaller amounts across different accounts, a total exceeding Rs 10 lakh will catch the authorities’ attention.

Going over this limit doesn’t automatically mean tax evasion, but it will prompt the Income Tax Department (ITD) to examine the source of the funds. This rule applies to any fixed deposit surpassing Rs 10 lakh.

The Rs 10 lakh limit refers to the total value of all your fixed deposits held across all accounts and financial institutions, not just individual deposits.

Banks are required to disclose transactions by filing form 61A, a statement of financial transactions, if the total amount deposited in single or multiple fixed deposits surpasses the specified limits.

Real Estate Transactions

In India, the Income Tax Department (ITD) mandates buyers to disclose the source of funds when purchasing properties valued over Rs 30 lakhs. This rule aims to prevent tax evasion and money laundering.

The limit for disclosing fund sources is Rs 50 lakhs for urban property transactions and Rs 20 lakhs for rural areas. However, individual states may have stricter requirements, so it’s important to check local regulations before acquiring property.

Also Read: What Should Salaried Employees Check in Form 16 before Filing ITR For AY 2024-25?

Buyers may disclose the source of funding by completing Form 26QB and sending it to the ITD, or by including it in the registration documents. Even if the property value is below these limits, the income tax department may request fund source information if there are differences in reported income or financial activities. Failing to declare the source of funds can lead to penalties, tax assessments, and investigations.

When responding to an income tax department notice regarding high-value transactions, it’s essential to provide thorough documentation supporting your fund source. This includes bank and investment statements, or legal documents related to inheritances.

If not sure about reporting fund sources, consulting a tax expert is advisable. Transparency and compliance with tax laws are important for proper financial planning and avoiding legal complications.

Want to learn the art and science of managing your money? The 1% Club can help. Details here.