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Income Tax Notice: 6 High-Value Cash Transactions That Can Get You Flagged by the I-T Department

Introduction

The Income Tax Department keeps a vigilant eye on high-value cash transactions to prevent money laundering and tax evasion. Financial institutions are obligated to report specific cash transactions to the tax authorities. Failure to comply with these reporting requirements can lead to legal consequences. In this article, we will explore the six major types of high-value cash transactions that can get you flagged by the Income Tax Department.

1. Real Estate Asset Acquisition

Under Section 12 of the Prevention of Money Laundering Act, property registrars are required to notify the tax authorities about the acquisition or sale of immovable properties valued at ₹30 lakh or higher. This notification must be submitted within 30 days of property registration. The following details are required to be furnished:

  • Names and addresses of the buyer and seller
  • Transaction date
  • Property type (e.g., land, house, apartment)
  • Property location
  • Sale or purchase price of the property

These reporting requirements enable tax authorities to track large-scale cash transactions and detect potential cases of money laundering and tax evasion. Whether the payment is made in cash or by check, all transactions involving the purchase or sale of immovable property valued at ₹30 lakh or more must be reported to the property registrar.

2. Purchasing Bonds, Debentures, Mutual Funds, and Stocks

Companies or institutions issuing bonds or debentures must report any receipt of ₹10 lakh or more from an individual during a financial year for the acquisition of such securities. Similarly, companies issuing 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 following information must be provided 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)

By collecting this information, the Income Tax Department can identify taxpayers who may be underreporting their income or engaging in dubious investing activities. These reporting requirements apply to investments made by individuals, Hindu Undivided Families (HUFs), and partnership firms but not to investments made by companies.

3. Purchasing Foreign Exchange

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 applies to individuals, HUFs, and partnership firms but not to companies. The following foreign exchange transactions must be reported:

  • Purchase of foreign currency notes and coins
  • Procurement of travelers' checks and foreign exchange cards
  • Utilization of debit or credit cards for foreign currency payments

For example, if you purchase foreign coins and notes from a bank, the bank is required to notify the Income Tax Department of the transaction. This reporting requirement aims to identify tax evasion and money laundering. The information provided helps the Income Tax Department identify taxpayers who may be underreporting their income or engaging in questionable foreign exchange transactions.

4. Deposits of Cash into Bank Accounts

Banks and cooperative banks are required to notify the tax authorities about 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 aims to combat tax evasion and money laundering. The following details must be submitted:

  • Depositor's name and address
  • Depositor's PAN number (if provided)
  • Date of the cash deposit
  • Cash deposit amount
  • Account number(s) in which the cash deposit was made

These reporting requirements empower the tax authorities to identify taxpayers who may not be disclosing their entire income or engaging in suspicious cash deposits. The reporting obligation applies to cash deposits in one or more accounts, excluding current accounts and time deposits, held by an individual. If multiple cash deposits are made, each below ₹10 lakh, but the cumulative cash deposit amount in a financial year reaches ₹10 lakh or more, the bank or cooperative bank must notify the tax authorities.

5. Funds Held in Fixed Accounts

Banks must 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 following details must be furnished:

  • Depositor's name and address
  • Depositor's PAN number (if provided)
  • Date of the cash deposit
  • Cash deposit amount
  • Account number(s) where the cash deposit was made

This information enables the tax authorities to identify taxpayers who may be underreporting their income or engaging in dubious cash deposits. The reporting requirements apply to cash deposits into time deposits made by individuals, HUFs, and partnership firms but not corporations.

6. Money Paid via Credit Cards

Credit card issuers are obligated to report to the Income Tax Department any cash payments for credit card balances exceeding ₹1 lakh. Additionally, if a person settles credit card debts totaling ₹10 lakh or more in a fiscal year, the tax department must be notified of these transactions.

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

  • Credit cardholder's name and address
  • Credit cardholder's PAN number (if provided)
  • Payment date
  • Payment amount
  • Payment method (e.g., cash, cheque, NEFT)

 

The Tax Heaven

Mr.Vishwas Agarwal✍📊, a seasoned Chartered Accountant 📈💼 and the co-founder & CEO of THE TAX HEAVEN, brings 10 years of expertise in financial management and taxation. Specializing in ITR filing 📑🗃, GST returns 📈💼, and income tax advisory. He offers astute financial guidance and compliance solutions to individuals and businesses alike. Their passion for simplifying complex financial concepts into actionable insights empowers readers with valuable knowledge for informed decision-making. Through insightful blog content, he aims to demystify financial complexities, offering practical advice and tips to navigate the intricate world of finance and taxation.

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