Check These 6 Transactions to Avoid Income Tax Notice for Cash Deposits

The Income Tax department has become vigilant nowadays against cash transactions. High-value cash transactions can land you in trouble and attract an Income Tax notice for cash deposits. Various financial entities, like Mutual Fund houses, banks etc., allow cash transactions up to a specific limit, and the IT department will be notified if an individual makes cash transactions above a limit.

Limitations on cash deposits apply to cash transactions from mutual fund houses, banks, brokerages and property registrars. The Income Tax department must always be notified if the value surpasses a particular threshold, and it has settlements with various government agencies to obtain the financial records of individuals who indulge in high-value transactions but do not report them on their tax filing.

When do Banks Have to Report Cash Deposits?

If you want to know how much cash deposit is suspicious, here is the answer. Branches of banks must report all transactions of Rs. 10 lakhs & above and all other transactions of suspicious nature with full details in their fortnightly statements to their controlling offices.

6 Transactions That Can Attract an Income Tax Notice for Cash Deposits

Here are the six transactions that can attract an income tax notice for cash deposits –

  1. Cash Deposits in Bank Accounts: The cash deposit limit in savings account is Rs. 10 lakhs. If a savings account holder deposits more than Rs. 10 lakhs in a savings account during a financial year, they may receive an income tax notice for such cash deposits. Cash deposits and withdrawals in a bank account beyond Rs. 10 lakhs in a financial year must be notified to the tax authorities. The cap is at Rs 50 lakhs for current accounts.
  2. Bank Fixed Deposits: Cash deposits in fixed accounts should not exceed Rs 10 lakhs. According to the Central Board of Direct Taxes (CBDT), banks must report to the income tax authorities, if individual deposits exceed the prescribed limit in one or more fixed deposits.
  3. Payment of Credit Card Bills: Payment equal to or above Rs. 1 lakh in cash against credit card bills must be reported to the Income Tax department, as per the CBDT norms. Also, if the payment of above Rs. 10 lakhs is made in a financial year to settle credit card bills, then the payment should be disclosed to the income tax department. To avoid getting an income tax notice on cash deposits, the same should be disclosed at the time of filing your ITR.
  4. Cash Deposit in Mutual Fund / Stock Market / Bond / Debenture: There has been a massive surge in the number of Demat account holders in India in the previous years. Limitations on cash deposits on mutual funds, stock market, bonds, or debenture are Rs. 10 lakhs in a financial year. An Annual Information Report (AIR) statement has been created by the Income Tax department to trace high-value transactions of taxpayers. Tax officials fetch details against high-value transactions on this basis in a particular financial year. If someone goes beyond the specific limit, they may receive an income tax notice for cash deposits, which could lead to the opening of scrutiny assessment of their last Income Tax Return (ITR).
  5. Real Estate Transactions: If an individual purchases or sells any real estate property that is valued at Rs. 30 lakhs or more, the property registrar will report the sale or purchase transaction of such property to the income tax authorities. So, the taxpayers should report such cash transactions while filing ITR.
  6. Sale Of Foreign Currency And Indulging Expense in Foreign Exchange: The Income Tax department must be notified if an individual receives Rs. 10 lakhs or above for the sale of foreign currency and any credit in such currency through a debit card, credit card, insurance, traveller’s cheque, draft, or other instruments.

Big ticket transactions like above can attract income tax notice for cash deposits from the Income Tax department. Be mindful of the limitations on cash deposits while making these transactions to stay safe.

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