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Income Tax Notice: The Income Tax Department uses advanced data analytics to detect discrepancies between income and expenditure. This department gathers complete information about the financial position of an individual by examining information from various sources like bank statements, property records, investment details and travel records. Additionally, it may collect information from external sources such as employers, travel agencies and stock exchanges to verify the source of income and identify potential discrepancies.
This investigation is very useful in tax evasion cases, allowing the department to initiate investigation and issue notices. It also helps in collecting evidence and conducting direct inquiries for tax recovery. Below are details of common transactions that may lead to a tax notice being sent if made in cash:
Depositing large amounts of cash in a savings account
In India, it attracts the attention of the Income Tax Department when someone deposits more than Rs 10 lakh in a savings account in one or more financial years. If you have more than Rs 10 lakh deposited in all your savings accounts in the financial year (from April 1 to April 31), then this information is given to the department. The Central Board of Direct Taxes (CBDT) directs banks to report such transactions. If you have divided this amount and deposited it in several banks but the total amount in all these accounts is more than Rs 10 lakh, then you will come under the radar of the Income Tax Department.
Crossing the Rs 10 lakh limit does not directly mean tax evasion, but it does put you on the radar of the Income Tax Department. You will have to indicate the source of the deposited amount. This becomes necessary if your declared income does not match this amount. If your answers are not satisfactory or there are discrepancies in your tax return, you may face further inquiries or penalties.
Making fixed deposits in cash and purchasing shares, mutual funds and debentures in cash
After the recent increase in interest rates on fixed deposits, the inclination of a large number of people has increased towards this. There is good and important news for such people that in case of purchase of shares, mutual funds and debentures including fixed deposits, if the amount of cash transaction is Rs 10 lakh or more, then its information is given to the Income Tax Department. The applicability of these rules does not depend on whether the money is deposited for any purpose or not.
Pay credit card bill in cash or pay property deal in cash
There is no rule of automatic check while paying credit card bill in cash. Yes, if you are paying a credit card bill of more than Rs 1 lakh every month in cash, then you will have to disclose the source of this amount. At the same time, in case of purchase and sale of property worth Rs 30 lakh or more, it is mandatory to tell the Income Tax Department where the money came from.
To come under the ambit of income tax, it is not necessary that rules are being violated. If any question arises in the mind of the Income Tax Department regarding the transaction of large amount, then you will have to tell about the source of the money. Not providing complete and accurate information about the source of funds can result in fines and even legal action.
How does the Income Tax Department get information?
The Income Tax Department uses various sources to collect information about transactions made in cash or any other means exceeding a certain limit.
Banks and Financial Institutions: These are considered the most important. The Income Tax Department receives information directly from banks about depositing large cash in FD/RD, savings accounts or giving loans.
Property Registrar: The biggest and strongest evidence of real estate related transactions is present in the property registration office.
Stock Exchange: Information related to the capital market including shares, mutual funds and debentures is also available with the Income Tax Department.
important things
The Income Tax Department looks at your complete financial picture including your returns, previous years' income and major transactions. In such a situation, it is important that you keep track of all your earnings.
It is very important to give correct information in any kind of cash transaction.
Disclaimer: This blog is not legal advice or suggestion of any kind.