ITR filing 2024: High-value transactions that may attract income tax department notice

Taxpayers should note that high-value cash transactions exceeding a specified limit are subject to monitoring by the Income Tax Department. Failure to disclose such transactions in Income Tax Returns (ITR) filing could result in a notification from the tax authorities.

Noteworthy cash transactions, such as bank deposits, mutual fund investments, property dealings, and share trading, fall within the purview of the IT Department's surveillance. If these transactions exceed the designated threshold, individuals are advised to inform the I-T department to preclude receiving a notice.

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Furthermore, during the income tax return filing process, it is common for taxpayers to make errors that may lead to their ITR being rejected or trigger an income tax notice.

To facilitate access to individuals' high-value transaction records, the Income Tax Department has established agreements with specific government agencies and financial institutions.

Bank account transactions

Any transaction exceeding Rs 10 lakh in a savings bank account or Rs 50 lakh in a current bank account in a financial year should be disclosed to the Income Tax department. Deposits above Rs 2 lakh in a single transaction also fall under scrutiny.

Fixed Deposit

Given the recent increase in fixed deposit (FD) rates, these have become more appealing options for investors looking for a stable and predictable source of income. The current threshold for reporting cash deposits to the Income Tax Department (ITD) stands at Rs 10 lakh during a single financial year (from April 01 to March 31), regardless of the intended use, including funds placed in fixed deposits. It is essential to monitor multiple deposits made into various bank accounts. Even if you distribute a cash deposit into smaller sums across different accounts, any total exceeding ₹10 lakhs will prompt authorities to take notice.

Exceeding this limit does not necessarily indicate tax evasion but will draw the ITD's scrutiny, requiring a clear explanation of the source of the funds. This examination is relevant to any fixed deposit surpassing Rs 10 lakhs. The Rs 10 lakh threshold pertains to the total value of your FD investments across all accounts and financial institutions, rather than solely the amount of each individual deposit.

By filing form 61A, a statement of financial transactions, banks are required to disclose transactions if the total amount deposited in single or multiple fixed deposits exceeds the specified limits.

Cash payments

Banks or cooperative societies are mandated to report transactions where cash payments are made for purchasing bank drafts, pay orders, or banker’s cheques.

Credit card payments

Cash payments exceeding Rs 1 lakh annually for credit card bills and payments surpassing Rs 10 lakh across all credit cards through non-cash methods are subject to monitoring.

The Income Tax Department has the authority to send notifications for significant transactions, like domestic business-class air travel, tuition or donation payments, acquisitions of jewellery, white goods, paintings, marble, and electricity expenses beyond Rs 1 lakh within one fiscal year.

Real estate buy and sell

In India, it is a requirement by the Income Tax Department (ITD) for buyers acquiring properties valued at over Rs 30 lakhs to disclose the origin of the funds used for the purchase. This regulation is set in place to combat tax evasion and deter money laundering activities.

The current thresholds that necessitate the declaration of the source of funds are Rs 50 lakhs for property transactions in urban areas and Rs 20 lakhs for rural areas. However, individual states may have stricter thresholds in place, so it is recommended to verify the specific regulations applicable to the region where the property is being acquired.

The declaration of the source of funds can be made by including it in the registration documents or by submitting Form 26QB to the ITD. Even if the property value falls below the prescribed threshold, the ITD reserves the right to request information regarding the source of funds if there are suspicions of inconsistencies in your income or financial activities. Neglecting to declare the source of funds may result in penalties, tax assessments, and potentially lead to investigations.

To address an ITD notice concerning high-value cash transactions, it is imperative to gather adequate documentation that supports your explanation regarding the origin of funds. This documentation should consist of bank statements, investment statements, or any legal documents pertaining to inheritances.

If you are unsure or have any reservations regarding reporting the provenance of the funds, it is highly recommended to consult with a knowledgeable tax consultant for tailored advice. Maintaining transparency and complying with tax laws is crucial for responsible financial planning and reducing the risk of legal issues.