Beware! 10 Key Financial Transactions That May Trigger Income Tax Scrutiny

Numerous individuals are not even aware that the Income Tax Department keeps a close eye on certain high-value transactions in order to curb cases related to tax evasion and ensure transparency in the system. If you perform any of the following transactions, then you may get reported to the department and can attract scrutiny.

Below are the types of transactions, their value limits, and who reports them to the tax authorities:

1. Large Cash Transactions in Banks

If any individual performs any of the following large-value cash transactions in a bank, then a banking company or a cooperative bank reports the information to the Income Tax Department:

• If an individual makes a payment of an aggregate of Rs. 10 lakh or more in a financial year for the purpose of purchasing bank drafts or pay orders, or banker’s cheques.
• If an individual makes a payment of an aggregate of Rs. 10 lakh or more during a financial year for pre-paying instruments issued by the Reserve Bank of India (RBI).
• If an individual makes a payment of an aggregate of Rs. 50 lakh or more in a financial year in or from one or more current accounts of a person for the purpose of depositing or withdrawing cash, including through a bearer’s cheque.

2. Large Cash Deposits in Savings Accounts or Post Office Accounts

If any individual makes the following large cash deposits in Savings Accounts or Post Office Accounts, then a banking company or a cooperative bank and Post Master General informs the details to the Income Tax Department.

• If cash deposits are made of an aggregate of Rs. 10 lakh or more in a financial year in one or more accounts (other than a current account and time deposit) of a person.

3. Large Fixed Deposits (Time Deposits)

If any individual makes the following large fixed deposits (Time Deposits), then a banking company or a cooperative bank, the Postmaster General, a Nidhi Company and a Non-banking financial company report to the Income Tax Department.

• If cash deposits of aggregate Rs. 10 lakh or more are made in a financial year in one or more accounts (other than a current account and time deposit) of a person.

4. High Credit Card Payments

If any individual makes the following high credit card payments, then a banking company or a cooperative bank, or any other company or institution issuing credit cards, informs the Income Tax Department of the details.

• If payment of an aggregate of Rs. 1 lakh or more in cash or Rs. 10 lakh or more by any other mode is made against bills raised in respect of one or more credit cards issued to that person in a financial year.

5. Purchase of Bonds or Debentures

If any individual performs the following purchase of Bonds or Debentures, then the company or institution issuing the bonds or debentures reports the information to the Income Tax Department.

• If Payment is made of an aggregate of Rs. 10 lakh or more in a financial year to purchase bonds or debentures issued by the company or institution (other than the amount received on account of renewal of the bond or debenture issued by that company).

6. Purchase of Company Shares

If any individual performs the following purchase of company shares, then the company issuing shares reports the details to the Income Tax Department.

• If Payment is made of an aggregate of Rs. 10 lakh or more in a financial year to purchase shares (including share application money) issued by the company.

7. Buyback of Shares by Listed Companies

If any individual performs the following buyback of shares by listed companies, then a company listed on a recognised stock exchange purchasing its own securities under section 68 of the Companies Act, 2013, reports to the Income Tax Department.

• If the buyback of shares from any person (other than the shares bought in the open market) is made of an aggregate of Rs. 10 lakh or more in a financial year.

8. Investment in Mutual Funds

If any individual performs the following investment in Mutual Funds, then a trustee of a Mutual Fund or such other person managing the affairs of the Mutual Fund reports the information to the Income Tax Department.

• If an investment of an aggregate of Rs. 10 lakh or more in a financial year is made to acquire units of one or more schemes of a Mutual Fund (other than the amount received on account of transfer from one scheme to another scheme of that Mutual Fund).

9. Foreign Currency Transactions

If any individual performs the following large foreign currency transactions, then the Authorised person under the Foreign Exchange Management Act, 1999, reports to the Income Tax Department.

• If a person buys or spends Rs. 10 lakh or more worth of foreign currency in a financial year for the sale of foreign currency, including any credit of such currency to a foreign exchange card or expense in such currency through a debit or credit card or through the issue of a traveller’s cheque or draft or any other instrument.

10. Purchase or Sale of Immovable Property

If any individual performs the following purchase of immovable property, then the Inspector-General or Registrar or Sub-Registrar appointed under the Registration Act, 1908, reports the information to the Income Tax Department.

• If a person buys or sells property valued at Rs. 30 lakh or more, or if the stamp duty valuation of the property is Rs. 30 lakh or more, the registration authority will report it.