Income Tax notice: The Income Tax Department is aware of some high-value transactions that, if disregarded, could put you in trouble with the law. Tax authorities keep a careful eye on a range of cash-related transactions in order to avoid both money laundering and tax evasion. Financial institutions, including as banks, brokerages, mutual fund firms, and property registrars, are required to notify the tax department of any cash transactions that surpass a certain amount. The following list of cash transactions is being closely watched by tax authorities:
1. Real estate asset acquisition
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
Tax authorities use this data to track large-scale cash transactions and spot possible cases of money laundering and tax evasion. Whether the payment is made with cash or by check, all transactions involving the purchase and sale of immovable property valued at ₹30 lakh or more must be reported to the property registrar.
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2. Purchasing bonds, debentures, mutual funds, and stocks
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)
The Income Tax Department can use this information to find taxpayers who might not be declaring all of their income or who might be involved in dubious investing 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.
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 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 company that provides you with foreign exchange must report the transaction to the Income Tax Department. 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 mandate is implemented to find 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.
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4. Deposits of cash into bank accounts
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.
5. Funds held in fixed accounts
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.
As a result, the bank must notify the CBDT that the total cash deposit in time deposits for the fiscal year 2022–2023 is ₹10 lakh. Reporting requirements apply to time deposits made in cash by individuals, HUFs, and partnership firms (but not corporations).
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6. Money paid via credit cards
Credit card issuers are now required by the CBDT to report to the Income Tax Department any cash payments for credit card balances that exceed ₹1 lakh. Furthermore, in the event that 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 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.)
If you plan to pay ₹1 lakh or more in cash for your credit card debt, you should be aware of this reporting requirement. You should also be prepared to provide the credit card issuer with the necessary payment data.
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