Income Tax Notice: Avoid These 6 Transactions to Prevent a Notice from the IT Department

The Income Tax Department closely monitors high-value transactions. If you engage in any of these flagged transactions without proper reporting, you may receive a notice from the department. Cash transactions above certain thresholds in banks, mutual funds, brokerage houses, and property registrars must be reported to the tax authorities.

1. Fixed Deposit (FD) Exceeding ₹10 Lakh

Depositing more than ₹10 lakh in a fixed deposit (FD) in a financial year can trigger a notice. The transaction amount includes both one-time deposits and cumulative deposits. Whether done through cash or digital means, the Income Tax Department may inquire about the source of funds. Banks are required to report cash deposits of ₹10 lakh or more to the Central Board of Direct Taxes (CBDT).

2. High-Value Cash Deposits in Bank Accounts

The CBDT mandates that banks report individuals depositing ₹10 lakh or more in savings accounts within a financial year. This applies to one or multiple accounts held by a person in a bank or co-operative bank. Current accounts and time deposits are not included in this rule. If the deposit exceeds the threshold, the department may question the source of the funds.

3. Property Transactions of ₹30 Lakh or More

Buying or selling property worth ₹30 lakh or more requires reporting to the Income Tax Department by the property registrar. The department may investigate the source of funds and other financial details involved in the transaction.

4. High-Value Investments in Shares, Mutual Funds, Debentures, and Bonds

Purchasing shares, mutual funds, debentures, or bonds worth ₹10 lakh or more in a financial year is flagged by financial institutions. The respective companies or agencies must report such transactions to the Income Tax Department. Any discrepancies or unverified sources of funds can lead to a notice.

5. Large Credit Card Bill Payments in Cash

If you pay a credit card bill exceeding ₹1 lakh in cash at once, you may receive a notice. Moreover, if the total credit card bill payments exceed ₹10 lakh in cash in a financial year, the department may ask for clarification regarding the source of funds. Such transactions should be reported in your income tax return.

6. Large Cash Withdrawals and Deposits

Frequent large cash withdrawals and deposits can also raise suspicion. Individuals withdrawing or depositing large amounts should be prepared to justify the source and usage of funds to avoid scrutiny from the tax authorities.

Conclusion

To avoid complications, ensure that all high-value transactions are documented and reported appropriately. Using digital payment methods and maintaining proper financial records will help in avoiding unnecessary tax notices. If you are unsure about the tax implications of a transaction, consulting a financial advisor is always recommended.