In an era where digital transactions are increasingly becoming the norm, many still prefer cash for its anonymity and simplicity. However, the Indian Income Tax Department has tightened its scrutiny over substantial cash transactions to curb tax evasion and promote transparency.

Today, let’s delve into five types of transactions where dealing in hefty cash amounts might invite unwelcome attention from the tax authorities.

1. Savings Account Deposits

Depositing cash over ₹10 lakh in a savings account within a financial year can trigger red flags. Banks are mandated to report such transactions to the Central Board of Direct Taxes (CBDT), making it crucial for individuals to be mindful of their deposit habits to avoid unnecessary scrutiny.

2. Fixed Deposits (FDs)

Similar to savings accounts, investing more than ₹10 lakh in cash in FDs during a single financial year can attract the tax department’s notice. It’s advisable to opt for digital means or cheque deposits to maintain a clear financial trail and stay off the tax radar.

3. Investments in Stocks and Mutual Funds

Investing over ₹10 lakh in cash in stocks, mutual funds, or bonds within a year can make you susceptible to scrutiny by tax officials. Such significant investments should preferably be routed through banked income to ensure compliance and avoid any potential tax notices.

4. Credit Card Bill Payments in Cash

While there’s no fixed limit on paying credit card bills in cash, consistently clearing bills over ₹1 lakh per month can attract the department’s attention. The authorities might investigate the source of funds, urging taxpayers to maintain a transparent and traceable payment record.

5. Property-Related Cash Transactions

Purchasing property with cash payments can be particularly risky. Transactions above ₹50 lakh in urban areas and ₹20 lakh in rural areas necessitate informing the tax department. It’s imperative to follow the legal channels and document such transactions to avoid complications with the tax authorities.

Key Takeaways

  • Be Cautious with Cash: High-value cash transactions can make you visible to the tax authorities, even if the income is legitimate.
  • Document Everything: Keeping a detailed record of your financial transactions, especially large ones, can save you from potential legal and tax-related hassles.
  • Opt for Banking Channels: Whenever possible, use bank transfers, cheques, or online payments to maintain transparency and create a verifiable financial trail.

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