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May 12, 2021

10 transactions that can attract Income Tax notice under Income Tax Act, 1961

by Mahesh Mara in Income Tax

10 transactions that can attract Income Tax notice under Income Tax Act, 1961

High Value transactions are transactions which are incurred in high denominations. From last few years income tax department is shaking hands with all the other related Govt. departments from which it can procure financial information and trace all the persons who are spending high amount but are not filing income tax return or are not paying taxes according to income earned. The Govt. day by day is taking several measures to reduce tax evasion and for this it is adopting technology and is bringing its operation in digital mode.

One needs to remain alert while doing any kind of high value transaction because the Income Tax Department has become highly vigilant about the high value transactions. Today it has various tools through which it will find out that one has done high value cash transaction. For example, if a person invests in stock market via demand draft using cash, the broker will report about the investment in its balance sheet. So, there is need to know the high value cash transaction limit and one should keep one’s cash transactions inside that limit and avoid getting any kind of income tax notice.

The Income Tax Department comes to know about the high value transaction through reporting Authorities i.e. banks, post office, Registrars, companies who are required to intimate about high value transactions to Income-tax Department by filing Form 61A called Statement of Financial Transaction. This form helps Investigation Wing of Income-tax Department to know about the high-value transactions and then it checks whether such person has filed return of income or not. If return is filed whether income disclosed is true and taxes have been paid correctly or not. Speaking on the various transactions that may lead to income tax notice below are the top 10 transactions that can attract income tax notice:

1. Cash deposit in Savings account

For an individual, the cash deposit limit in savings account is Rs. 1 lakh. In case a savings account holder deposits more than ₹1 lakh in one’s savings account, then the income tax department may send income tax notice with regards such cash transactions. If you have two saving bank account and the total deposit exceeds Rs 10 lakh in a year, the Bank is required to report this to Income Tax department. In case assessee fails to report the income in the Income Tax Return than department may issue notice for Reassessment of income under the Income Tax Act, 1961.

2. Non Reporting of Savings Bank Interest / FDR Interest in ITR

The Bank submits report to the Income Tax Department providing details with respect to amount of savings bank interest and FD interest earned by a person during the financial year in case the person fails to report the same in the Income Tax Return than the same may lead to under reporting of income and due to this the department may issue notice with respect to under reporting of income. In order to avoid such thing the assessee must report all the saving bank interest or FD interest earned by him during the financial year.

3. High Value Cash Deposit in current account

If you cash deposit or cash withdraw more than Rs.50 lakhs to / from your current bank account than the bank will report it to Income Tax authority. Cash deposits or withdrawals aggregating to Rs 50 lakh or more in a financial year in one or more Current Account of a person will have to be reported by the bank to the I-T authorities. Any cash payment of Rs 10 lakh or more in a financial year for purchase of bank drafts or pre-paid instrument issued by RBI will also be reported.

4. High Value Transactions e.g. Share Trading or Derivatives:

Assessee investing in mutual funds, stocks, bond or debenture must ensure that its cash infusion in the above mentioned investment options doesn’t go beyond Rs. 10 lakh limit. Failing to maintain this cash infusion limit may lead to income tax department checking your last Income Tax Return (ITR). If assessee purchase share of company (listed or unlisted) more than Rs.10 lakhs in a financial year than the Company will report it to Income Tax authority.

5. Payment made from credit card

If you do paid more than Rs.10 lakhs to a credit card company in a financial year than the Credit Card Company will report to Income Tax authority. While paying credit card bill, one should not cross Rs. 1 lakh limit in cash.

6. Bank Fixed Deposit (fixed deposit)

If you do fixed deposit more than Rs.10 lakhs in a financial year than bank will report it to Income Tax authority. Cash deposit in bank FD is allowed but it should not go beyond Rs. 10 lakh. Violation of this Rs. 10 lakh limit is also not advisable for a bank depositor making cash deposit in one’s bank FD account.

7. Purchases of bank drafts

Purchases of bank drafts, pay orders, purchase order’s or bankers cheque in cash for Rs 10 lakh or more in a year must be report. If assessee purchases bank draft, , pay orders, purchase order’s or bankers cheque of more than Rs.10 lakhs in a financial year than bank will report it to Income Tax authority.

8. Purchase or sale of immovable property

The Registrar of properties will have to report purchase & sale of all immovable property exceeding Rs 30 Lakh to the Income Tax authorities. While buying or selling a property, one must make sure that cash transaction above Rs. 30 lakh is questionable as income tax department discourages cash transaction beyond this limit in a real estate deal. Purchase or sale of immovable property having guidance value of Rs. 30 Lakh or above. The actual price of sale or purchase is irrelevant.

9. Cash received for 2 lakhs or more against sale of goods or services

Any person who is liable for audit under section 44AB of the Act is liable to report Cash received for 2 lakhs or more against sale of goods or services. Aggregation rule is not applicable for above transaction type i.e. Rs. 2,00,000 to be consider only for single transaction entered by Assessee in which he receive amount in Cash only.

10. Foreign Currency expenses of more than Rs. 10 Lakhs

Expenditure in foreign currency via debit card, credit card or traveller’s cheque for the amount Rs.10 Lakh or above in a year. If you do paid more than Rs.10 lakhs in foreign currency expenses through a debit/credit card in a financial year than the Credit Card Company will report to Income Tax authority.

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