Cash transactions that attract income tax notice: Cash deposits, credit card payments, property transactions

You should be vigilant while making certain high-value transactions because the income tax department keeps an eye on such transactions.

Beware of these high-value cash transactions

With a view to curb tax evasion and discourage the high volume of cash transactions, the income tax department and numerous funding platforms like financial institutions, mutual fund homes, dealer platforms, and so on have tightened their guidelines for the public. 

The Government has introduced various provisions in the Income Tax Act, placing limits on the amounts of cash transacted. These limits are set to match the earnings of a person with their investments and expenses. If a taxpayer exceeds these limits, the financial institution or business entity must report the transaction to the Government, which could lead to the issuance of an income tax notice to such individuals.

Here’s a list of some high-value cash transactions that can get you a notice from the income tax department.

1. Cash deposit in FDs

Although a fixed deposit may be created with a cash deposit, if a person deposits cash of more than Rs 10 lakh in a financial year, banks should report the transaction to the income tax authorities. These new rules are also applicable to post office accounts.

Related: 7 Types of income tax notices issued to taxpayers

2. Cash deposit in bank account

The cash deposit limit in savings account for an individual is Rs 1 lakh. The IT department may send a notice if a savings account holder deposits more than this amount in their savings account. Similarly, cash deposits or withdrawals that are more than Rs 50 lakh in aggregate per financial year in all current accounts of a person should be reported to the IT department. Violation of this limit may also make you liable for an income tax notice.

3. Credit card bill payment

Your monthly credit card payment beyond the threshold cash limit can now attract an income tax notice. If you pay an amount of Rs 1 lakh or more towards your credit card bill, your credit card company will report the transaction to the government. So, if you are someone who uses their credit cards to transact frequently, you should be mindful while paying your credit card bill with cash. 

4. Property transactions

One can buy or sell properties in cash, but the value of cash involved in such transactions should not exceed Rs 30 lakh per transaction. If it does, the registrar of companies will report the matter to the income tax department.

5. Buying shares, mutual funds, debentures, and bonds

If a person invests in the stock market via demand draft using cash, the broker will report the investment in the balance sheet. People investing in mutual funds, stocks, bonds, or debentures must ensure that the cash component in these investment options doesn't exceed Rs 10 lakh. Failing to maintain this limit may lead to the income tax department checking your last Income Tax Return (ITR).

Related: Explainer: Income tax notices and what they mean

6. Purchasing foreign exchange

Travelling frequently? You must be aware that purchasing foreign exchange, including travellers' cheques, forex cards, debit cards, or credit cards amounting to more than Rs 10 lakh will be reported to the IT department and will likely attract a notice. 

Last words

When it comes to cash transactions, the income tax department has tightened the rules in the last few years. The department can now send an income tax notice in case of the slightest violation. So, be aware of the high cash transactions limit in order to avoid any legal trouble.


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