In an effort to avoid scrutiny from the income tax department, it’s wise to be mindful of certain financial activities that can trigger an automatic notice. While it’s not about doing anything illegal, simply crossing specific transaction thresholds can put you on the department’s radar.
A seasoned tax expert, CA Nitin Kaushik, explains that financial institutions like banks, credit card companies, and mutual fund houses are mandated to report these “Specified Financial Transactions” (SFTs) to the tax authorities. If your transactions exceed these limits, an alert is automatically generated, potentially leading to a tax notice.
Here’s a breakdown of the transaction limits you should be aware of:
- Cash Deposits in Bank Accounts: The limit is 10 lakh per year for a savings account and 50 lakh per year for a current account.
- Credit Card Payments: Paying your credit card bill with 1 lakh or more in cash annually is a red flag. The same applies if your total credit card payments (through any mode) exceed 10 lakh in a year.
- Property Transactions: Buying or selling an immovable property with a value of 30 lakh or more is reported to the tax department.
- Investments: Investing 10 lakh or more annually in fixed deposits (FDs), or in shares, bonds, mutual funds, and debentures (per institution) can trigger an alert.
- Foreign Currency: Foreign travel expenses or forex purchases totaling 10 lakh or more in a year are monitored.
- Gifts: Receiving a cash gift of more than 50,000 from a non-relative makes the entire amount taxable.
- Large Cash Receipts: Accepting a cash amount of 2 lakh or more from any single person in a day can lead to a penalty under Section 269ST.
If you happen to receive a notice, the key is to stay calm and act promptly. Here are the steps recommended by experts:
- Do Not Panic, Do Not Ignore: Acknowledge the notice and its deadline. Ignoring it can lead to penalties.
- Verify the Notice: Use the Document Identification Number (DIN) provided on the notice to verify its authenticity on the Income Tax Portal.
- Identify the Reason: Carefully read the notice to understand which section of the Income Tax Act it falls under, such as Section 143(1) for adjustments or Section 148 for reassessment.
- Gather Necessary Documents: Collect all relevant paperwork, including your Form 16, ITR copies, bank statements, and investment proofs.
- Submit a Timely Response: File a clear and factual response through the e-filing portal and keep a copy for your records.
By being mindful of these thresholds and keeping accurate records, you can ensure your financial transactions are transparent and avoid any unnecessary interaction with the Income Tax Department. This knowledge empowers you to manage your finances with confidence and peace of mind.