7 Cash Transactions That Can Attract an Income Tax Notice

In India, cash transactions are highly discouraged due to the volume of tax evasion that takes place. The government announces new provisions in the Income Tax Act from time to time to limit individuals and businesses’ amounts of cash. These limits are also set so that the income tax department can match the earnings of a person with his investments made and expenditure incurred. A violation of these limits could lead to the relevant financial institution or business entity reporting the transaction to the government and the government sending out an income tax notice to that individual. 

Let’s look at some of the cash transactions that can attract an income tax notice in India. 

1. Deposits in savings accounts

The cash deposit limit for savings bank accounts is Rs.1 lakh. Any deposits in cash exceeding this could result in the depositor receiving a notice from the Income Tax (IT) department.

2. Deposits in current accounts

Cash deposits or withdrawals, which are more than Rs.50 lakh in aggregate per financial year in all the current accounts of a person, will need to be reported to the income tax department.

3. Deposits in FDs

A fixed deposit (FD) can be created with a cash deposit. However, cash deposits exceeding Rs.10 lakh in a financial year will have to be reported to the IT authorities. These rules apply to post office accounts as well.

4. Real estate investments

Buying or selling of properties can be done in cash. But the value of cash involved cannot exceed Rs.30 lakh per transaction. If it does, the Registrar of Companies will report the same to the IT authorities.

5. Credit card payments

Any credit card bills paid via cash more than Rs.1 lakh per annum will have to be reported by the credit card company to the government. Persons frequently using credit cards to transact should be more vigilant while paying their credit card bills.

6. Investments in financial instruments

A company receiving an investor over Rs.10 lakh towards investment in mutual funds, bonds, debentures or stocks will need to report the tax authorities.

7. Payments to businesses or professionals

A business or professional will need to report any cash receipts exceeding Rs.2 lakh that has been received for the sale of goods or services. There are already several provisions limiting cash transactions for businesses and professionals with regard to various types of expenditure. However, a blanket restriction has been imposed on receiving cash exceeding Rs.2 lakh regarding a single transaction, or in respect of transactions from a person about one event, or aggregate per person per day.

For any clarifications/feedback on the topic, please contact the writer at athena.rebello@cleartax.in