To streamline the tracking of high-value transactions, the Income Tax Department has set up agreements with various government agencies and financial institutions. It’s crucial for taxpayers to be aware that substantial cash transactions exceeding specific limits are under the watchful eye of the Income Tax Department. Not disclosing these transactions in Income Tax Returns (ITR) can lead to receiving notices from tax authorities.
Transactions such as significant bank deposits, mutual fund investments, property deals, and share trading fall within the scope of the Income Tax Department’s monitoring. If these transactions surpass the designated thresholds, individuals are advised to report them to avoid receiving a notice.
During the ITR filing process, mistakes are common and can lead to the rejection of the return or trigger an income tax notice. Ensuring accurate reporting of all high-value transactions is essential to avoid such issues.
The Income Tax Department monitors several types of transactions, including:
Bank Account Transactions: Transactions exceeding Rs 10 lakh in a savings bank account or Rs 50 lakh in a current account within a financial year should be disclosed. Deposits over Rs 2 lakh in a single transaction are also scrutinized.
Fixed Deposits (FDs): With increasing FD rates, these are popular for a stable income. Any cash deposits totaling over Rs 10 lakh in a single financial year across all accounts must be reported. Distributing deposits across multiple accounts to stay under the limit does not exempt one from reporting requirements.
Cash Payments: Banks and cooperative societies must report transactions involving cash payments for bank drafts, pay orders, or banker’s cheques.
Credit Card Payments: Annual cash payments exceeding Rs 1 lakh for credit card bills and non-cash payments over Rs 10 lakh across all credit cards are monitored.
The Income Tax Department also sends notices for substantial transactions such as domestic business-class air travel, tuition or donation payments, acquisitions of jewellery, white goods, paintings, marble, and electricity expenses over Rs 1 lakh within a fiscal year.
Buyers of properties valued over Rs 30 lakh must disclose the source of funds. This is to combat tax evasion and money laundering. The thresholds for declaring the source of funds are Rs 50 lakh for urban properties and Rs 20 lakh for rural properties. However, individual states may have stricter regulations.
To report the source of funds, buyers can include the information in registration documents or submit Form 26QB to the ITD. Even if the property value is below the threshold, the ITD can request information if there are inconsistencies in your financial activities. Failure to declare the source of funds can result in penalties and tax assessments.
If you receive a notice concerning high-value transactions, gather adequate documentation to support your explanation of the source of funds. This includes bank statements, investment records, or legal documents related to inheritances. Consulting with a knowledgeable tax consultant is highly recommended for tailored advice.
Maintaining transparency and complying with tax laws is crucial for responsible financial planning and avoiding legal issues.
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