Income Tax notice: 6 high-value cash transactions that can get you flagged by I-T dept

October 14, 2023
CA Chandan Agarwal's Office

Specific cash transactions have the potential to draw attention from the income tax department and result in potential issues. Substantially high transactions can attract a notice from the Department asking you to explain those transactions while sharing details of the same.

The Income Tax Department takes cognizance of certain high-value transactions that could land you in the legal net if ignored. To prevent tax evasion and money laundering, tax authorities closely monitor a variety of cash-related transactions. Financial institutions, including banks, mutual fund companies, brokerages, and property registrars, have an obligation to report cash transactions exceeding a specific threshold to the tax department. Below are several cash transactions subject to vigilant monitoring by tax authorities:

Acquisition of real estate assets

In accordance with Section 12 of the Prevention of Money Laundering Act, 2002 (PMLA), property registrars are mandated to notify tax authorities about any acquisitions or sales of immovable properties valued at ₹30 lakh or higher. This notification must be submitted within 30 days from the date of property registration. The property registrar must furnish the following details to the tax authorities:

The names and addresses of both the buyer and seller
The transaction date
The property type (e.g., land, house, apartment, etc.)
The property’s location
The sale or purchase price of the property

This data is utilized by tax authorities to monitor substantial cash transactions and identify potential instances of tax evasion and money laundering. The property registrar must report all transactions involving the purchase and sale of immovable property valued at ₹30 lakh or higher, irrespective of whether the payment is made in cash or by cheque.

Acquisition of stocks, mutual funds, debentures, and bonds

Companies or institutions that issue bonds or debentures must compulsorily report any receipt of ₹10 lakh or more from an individual during a financial year for the acquisition of bonds or debentures. This reporting measure is implemented to prevent tax evasion and money laundering.

Likewise, companies that issue shares must report any receipt of ₹10 lakh or more from an individual within a financial year for the acquisition of shares. This reporting obligation also extends to the purchase of mutual funds.

The company or institution must provide the following information to the Income Tax Department:

Investor’s name and address
Investor’s PAN number, if provided
Purchase date
Purchase amount
Type of security acquired (e.g., bond, debenture, share, mutual fund unit).

This data enables the Income Tax Department to identify taxpayers who may not be disclosing their complete income or who are engaging in suspicious investment activities.

The reporting mandate is applicable to investments made by individuals, Hindu Undivided Families (HUFs), and partnership firms, and it does not extend to investments made by companies.

Acquisition of foreign currency

Any purchase of foreign exchange amounting to ₹10 lakh or more during a financial year must be reported to the Income Tax Department. This reporting obligation is applicable to individuals, HUFs, and partnership firms, but it does not pertain to companies.

The subsequent foreign exchange transactions must be reported to the Income Tax Department:

Purchase of foreign currency notes and coins
Procurement of travellers’ checks and foreign exchange cards
Utilization of debit or credit cards for foreign currency payments

The establishment that supplies you with foreign exchange is obligated to notify the Income Tax Department of the transaction. For instance, if you buy foreign currency notes and coins from a bank, the bank must report the transaction to the Income Tax Department.

This reporting mandate is implemented to deter tax evasion and money laundering. The Income Tax Department can utilize the provided information to identify taxpayers who are either underreporting their complete income or engaging in questionable foreign exchange transactions.

Cash deposits in bank accounts

The Central Board of Direct Taxes (CBDT) has instituted a compulsory rule for banks and cooperative banks to notify the tax authorities regarding cumulative cash deposits of ₹10 lakh or more in one or more accounts (excluding current accounts and time deposits) held by an individual within a financial year. This regulation is implemented to combat tax evasion and money laundering. The bank or cooperative bank must submit the following details to the CBDT:

The depositor’s name and address
The depositor’s PAN number, if provided
The date of the cash deposit
The cash deposit amount
The account number(s) in which the cash deposit was placed

This data empowers the CBDT to pinpoint taxpayers who may not be disclosing their entire income or engaging in questionable cash deposits. This reporting obligation is applicable to cash deposits in one or more accounts, excluding current accounts and time deposits, held by an individual. In essence, if you make several cash deposits, each of which is less than ₹10 lakh, but the cumulative cash deposit amount in a financial year reaches ₹10 lakh or more, the bank or cooperative bank is mandated to notify the CBDT.

Money deposited in fixed deposits

The CBDT has stipulated that banks are obligated to report instances where an individual accumulates ₹10 lakh or more in a fixed deposit (FD) within a financial year, spanning one or more time deposits (excluding renewals). This reporting measure is implemented to deter tax evasion and money laundering.

The bank must furnish the following details to the CBDT:

The depositor’s name and address
The depositor’s PAN number, if provided
The date of the cash deposit
The cash deposit amount
The account number(s) where the cash deposit was made

This data enables the CBDT to pinpoint taxpayers who may be underreporting their total income or engaging in dubious cash deposits. These are instances of cash deposits into time deposits that necessitate reporting to the CBDT:

An individual deposits ₹5 lakh in cash into a new FD in January 2023.
An individual deposits ₹3 lakh in cash into an existing FD in February 2023.
An individual deposits ₹2 lakh in cash into a new FD in March 2023.

The cumulative cash deposit in time deposits for the financial year 2022-2023 amounts to ₹10 lakh, therefore, the bank is obligated to report this to the CBDT. The obligation to report pertains to cash deposits in time deposits by individuals, HUFs, and partnership firms, excluding companies.

Payments made using credit cards

The CBDT has imposed a compulsory requirement on credit card issuers to notify the Income Tax Department regarding cash payments totalling ₹1 lakh or more for credit card balances. Additionally, if an individual settles credit card dues amounting to ₹10 lakh or more through any means in a fiscal year, these transactions must also be reported to the tax department.

The purpose of this reporting requirement is to combat tax evasion and money laundering. The Income Tax Department can employ this information to detect taxpayers who may not be accurately disclosing their complete income or those engaged in questionable credit card payments. The credit card issuer must provide the following details to the Income Tax Department:

The credit cardholder’s name and address
The credit card holder’s PAN number, if provided
The payment date
The payment amount
The payment method (e.g., cash, cheque, NEFT, etc.)

Should you intend to make a cash payment of ₹1 lakh or more towards your credit card dues, it’s important to be mindful of this reporting obligation. Additionally, you should be ready to furnish the required payment details to the credit card issuer.

Source: https://www.livemint.com/money/personal-finance/income-tax-notice-6-high-value-cash-transactions-that-can-get-you-flagged-by-i-t-dept-11697112109394.html

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