Income Tax News: After several people complained about receiving income tax letters on social media, a lot of taxpayers are afraid. Several transactions could potentially result in the issue of an Income Tax notice. Here are a handful of the most common examples:
ITD Scrutiny on Cash Deposits
The Income Tax Department (ITD) keeps a close eye on every penny that people deposit and remove. If a savings account holder deposits more than ₹10 lakh in cash in a given fiscal year, the department may issue a notice to that person requiring an explanation of where the monies came from.
A ₹10 lakh benchmark has been set by the government for cash deposits made into savings accounts. This means that if a savings account balance exceeds ₹10 lakh at any point during a fiscal year, the department will be automatically notified.
Source Verification Process
The department will next begin looking into where the money that was used to make the deposit came from. If the department determines that the explanation is enough, no notification will be sent. But if the justification falls short of their expectations, the account holder may receive a formal notification requiring them to clarify where the money came from.
Potential Triggers for Notification
A number of things could cause the department to notify an account user who deposits more than ₹10 lakh in cash in a given fiscal year. The department’s assumption that the money is coming from illegal sources, such money laundering or tax evasion, could be one of these explanations. The money’s possible use to support terrorism or other illegal activities raises additional red flags.
Credit Card Transactions Under Scrutiny
The department keeps a close eye on every credit card transaction. The government may send you a notification asking for an explanation of the source of funds if, within a fiscal year, you spend more than ₹1 lakh in cash for your credit card bill.
A benchmark of ₹1 lakh has been set by the department for cash contributions towards credit card liabilities. This means that, practically speaking, if you pay more than ₹1 lakh in cash for your credit card bill during a fiscal year, the department will be automatically notified of the transaction.
Investigative Procedures Unveiled
The agency will next launch an investigation to find out where the money that was used to make the payment came from. No notice will be sent out if the department finds the reason adequate. But if the cardholder’s response isn’t up to par, they may send them a formal notice asking them to clarify where the money came from. A number of things could cause the department to send a notification to a cardholder whose cash payment for their credit card account exceeds ₹1 lakh within a given fiscal year.
RBI’s Cash Deposit Cap
A limit of ₹10 lakh has been set by the Reserve Bank of India (RBI) for cash deposits into fixed deposits (FDs). This means that you are not allowed to deposit more than ₹10 lakh in cash into a single FD account in a given fiscal year.
If you initiate a cash deposit into a single FD account that exceeds ₹10 lakh, the bank is required to disclose the activity to the RBI. The RBI then has the authority to investigate the source of these funds and take appropriate action.
The RBI imposed this requirement for a number of reasons. The avoidance of money laundering and other illegal acts is one justification. This indicator also helps to track the movement of capital within the economy.
Mitigating Cash Deposit Limit
If there are situations where you need to deposit more money than ₹10 lakh into an FD account, you can do this by making many contributions, each no more than ₹10 lakh. As an alternative, you might decide to deposit the money via non-cash techniques like bank transfers or checks.
Crucially, there are serious consequences if the ₹10 lakh cap on cash contributions into FDs is exceeded. It can involve asking for further information about where the money came from and even result in fines.
Surveillance on Cash Investments
All individual cash investments are closely monitored by the department. If the total amount of cash you invest in stocks, bonds, mutual funds, or debentures during a financial year exceeds ₹10 lakh, the department has the right to send you a notice asking for an explanation of where the money came from.
A ₹10 lakh benchmark has been set by the department for cash investments in certain asset classes. This basically means that if a cash investment in these asset classes exceeds ₹10 lakh during a fiscal year, the ITD will receive an instant alert.
Investigating Cash Investments
The department will next launch an investigation to find out where the money that was used for the investment came from. If the department determines that the explanation is enough, no notification will be sent. But, the department may formally alert the investor and request an explanation of the funds’ source if the answer offered is insufficient to meet their criteria.
Caution in Real Estate Transactions
When it comes to real estate transactions, the agency cautions against making cash transactions larger than ₹30 lakh. The difficulty in tracking cash transactions—which may enable money laundering or tax evasion—is the reason for this precaution.
It is essential for those purchasing or selling real estate to be aware of the department’s policies regarding cash transactions. If you are involved in a cash transaction that exceeds ₹30 lakh, you may be asked to clarify where the money came from. Moreover, the potential for penalties also arises.