Certain cash transactions can attract the attention of the Income Tax Department. Exceeding limits related to bank accounts, fixed deposits, property, credit cards, and investments could get you a tax notice.
In the age of digital transactions, UPI, and online banking, cash transactions have reduced. However, a part of the population still prefers cash. While using cash for small daily purchases is legal, high-value cash transactions can attract the Income Tax Department's attention. The CBDT has issued clear guidelines regarding certain types of cash transactions. Exceeding specified limits or attempting to avoid reporting requirements may result in a tax notice.
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Income Tax Department
If your total cash deposits in one or more bank accounts exceed Rs 10 lakh in a financial year, banks must report it to the Income Tax Department. This applies to both savings and current accounts. Upon receiving such information, the ITD may ask you to justify the source of funds. Failure to provide valid documents or proof of income could lead to a tax audit.
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Large cash deposits in FDs
Even if split into multiple branches or joint accounts, large cash deposits in FDs will be flagged. The ITD might issue a notice under the presumption of tax evasion. If you invest heavily in FDs, ensure the source of funds is legitimate and supported by receipts or proof of income.
Real estate transactions involving cash payments of Rs 30 lakh or more must be reported by the property registrar to the ITD. Attempts to make large cash payments to avoid registration fees or taxes will lead to scrutiny. You may be asked to submit details of your income, source of funds, and PAN numbers.
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Credit card bills
Paying credit card bills with cash exceeding Rs 1 lakh at once or total annual payments exceeding ₹10 lakh (cash, cheque, or transfer) must be reported by banks to the ITD. If you're a high spender, ensure your income details and tax filings are aligned.
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Stocks, mutual funds or bonds
Using cash for investments in stocks, mutual funds, bonds, or debentures exceeding Rs 10 lakh in a financial year must be reported. Ensure you use official banking channels and declare investment income to avoid scrutiny.
