13 Apr Identifying Instances Leading to Income Tax Notices in Real Estate Deals and Credit Card Transactions
Tracking Financial Activities:
The Income Tax Department meticulously monitors all financial transactions carried out by individuals, utilizing various data sources to ensure adherence to tax regulations. Certain transactions may trigger heightened scrutiny from tax authorities.
High-Value Cash Transactions:
The tax department pays particular attention to high-value cash transactions. For instance, if an individual receives a cash deposit exceeding Rs 10 lakh in a savings account within a fiscal year, this could prompt the department to issue a notice seeking clarification regarding the source of funds.
Mandatory Reporting by Banks:
As per the Central Board of Direct Taxes (CBDT) directives, banks are mandated to report instances where an individual deposits Rs 10 lakh or more across one or more time deposit accounts during a financial year, excluding deposits made through the renewal of another time deposit. Additionally, all banks, including cooperative banks, must report cash deposits of Rs 10 lakh or more across one or multiple accounts of an individual, excluding current accounts and time deposits.
Scrutiny of Securities Transactions:
Financial institutions and companies issuing bonds or debentures are obligated to report receiving Rs 10 lakh or more from any individual in a financial year for acquiring such securities. This measure is aimed at detecting potential instances of tax evasion or undisclosed income associated with significant cash movements.
Credit Card Transactions:
Several instances of credit card transactions may trigger Income Tax notices:
- Cash deposits exceeding Rs 10 lakh for savings accounts and Rs 50 lakh for current accounts, along with substantial withdrawals, may prompt inquiries into the origin and intended use of the funds.
- Real estate transactions exceeding Rs 30 lakh may come under the scrutiny of the tax department, which seeks detailed information about the transaction and involved parties.
- Investments surpassing Rs 10 lakh in stocks, mutual funds, or bonds may attract scrutiny if the origin of funds appears inconsistent with reported income.
- Although the Income Tax department does not actively monitor individual credit card transactions, cash payments exceeding Rs 1 lakh towards credit cards or substantial debt settlements exceeding Rs 10 lakh made in cash may undergo scrutiny and investigation. Ensuring transparency in significant transactions with verifiable fund sources is imperative, as unaccounted cash inflows may trigger investigations.
Mismatch of Declared Income:
Discrepancies between declared income and bank data may prompt notifications from the tax department, highlighting the importance of maintaining accurate financial records.
Foreign Exchange Transactions:
Any purchase of foreign exchange totaling Rs 10 lakh, including travelers’ checks, forex cards, or debit/credit card transactions, must be reported to ensure compliance with tax regulations.
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