Income Tax Notice: If you make high value transactions in cash, you may receive an income tax notice. Banks give information about high value transactions to the Income Tax Department.
CBDT recently said that it is now using AI in its monitoring system. This means that CBDT and Income Tax Department are now catching tax evasion through AI. If you think that you will escape the government’s attention by evading taxes, then it is your misconception. Income Tax Department keeps a close watch on high value transactions. Banks and financial institutions have to provide information about high value transactions in UPI, card payments, cash deposits and withdrawals to the Income Tax Department.
Tax department is using data analytics and AI
The Income Tax Department is using modern technology like data analytics and artificial intelligence to catch the difference between your expenses and income. Along with bank statements, the Income Tax Department also takes information related to investments, property deals and travel from your company, travel agency or stock exchange. If any discrepancy is found, the department can send a notice and an investigation can also be initiated. Tax officials keep an eye on high value cash transactions. Let’s know about 5 such cash transactions, which can bring you on the radar of the Income Tax Department:
Depositing a large sum of money in a savings account
If you have deposited Rs 10 lakh or more in cash in a financial year (April 1 to March 31), whether the amount is in a single account or combined in multiple accounts, the bank will report it to the Income Tax Department. This does not mean that you have evaded tax, but the department may ask you where you got so much money from. If the answer is not satisfactory or does not match your income, a penalty can also be imposed.
Making Fixed Deposit (FD) in Cash
A large number of people prefer to invest money in FDs. But, if you make FDs of Rs 10 lakh or more in cash in a year, then this too can come under the scrutiny of the Income Tax Department. Even if you have deposited this amount in several banks, if the total amount is more than Rs 10 lakh, then it will be reported to the Income Tax Department. Therefore, the source of the money used in FDs should be clear.
Cash investment in stocks, mutual funds or bonds
If you invest Rs 10 lakh or more in cash, such as in shares, mutual funds, bonds or debentures, then the information about this also goes to the Income Tax Department. It is not necessary that you get a notice immediately, but if a big difference is found between your income and investment, then there may be an investigation. Investing in cash is suspicious, because there is no digital record of it.
Paying credit card bill in cash
If you pay a credit card bill of Rs 1 lakh or more in cash every month, then it also comes in the records of the Income Tax Department. You do not get a direct notice for this, but if you do this repeatedly, then the question may arise as to where did you get so much cash from. Therefore, it is better to do such big transactions through digital means.
Cash payment for property
If you buy a property worth Rs 30 lakh or more, you will have to disclose the source of the amount. The limit is Rs 50 lakh in cities and Rs 20 lakh in rural areas. The limit may be even more stringent in some states. If you paid in cash and did not disclose the source, the Income Tax Department may ask you for proof. You can show it in the registration papers or provide the information through Form 26QB.
What to do if you receive an income tax notice?
There is no need to panic when you receive a notice. If you have a legal source of money, there will be no problem. In response to the notice, you will have to provide bank statement, proof of investment and proof of source of cash (such as inheritance, income from business, etc.).
