Income Tax Notice: 6 High-Value Cash Transactions That Can Raise Red Flags

The Income Tax Department is vigilant about certain high-value transactions that could lead to legal consequences if ignored. To combat tax evasion and money laundering, tax authorities closely monitor various cash-related transactions. Financial institutions, including banks, mutual fund companies, brokerages, and property registrars, have the responsibility of reporting cash transactions that exceed a specific threshold to the tax department. In this article, we will discuss several cash transactions that are subject to careful monitoring by tax authorities.

Acquisition of Real Estate Assets

As per Section 12 of the Prevention of Money Laundering Act, 2002 (PMLA), property registrars are required to inform tax authorities about any acquisitions or sales of immovable properties valued at ₹30 lakh or higher. This notification should be submitted within 30 days from the date of property registration. The property registrar must provide the following details to the tax authorities:

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

This data helps tax authorities monitor significant cash transactions and identify potential cases of tax evasion and money laundering. The property registrar must report all transactions involving the purchase and sale of immovable property valued at ₹30 lakh or higher, irrespective of whether the payment is made in cash or by cheque.

Acquisition of Stocks, Mutual Funds, Debentures, and Bonds

Companies or institutions issuing bonds or debentures are required to report the receipt of ₹10 lakh or more from an individual during a financial year for the acquisition of bonds or debentures. This reporting measure aims to prevent tax evasion and money laundering.
Similarly, companies issuing shares must report the receipt of ₹10 lakh or more from an individual within a financial year for the acquisition of shares. This reporting obligation also applies 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 available
• Purchase date
• Purchase amount
• Type of security acquired (e.g., bond, debenture, share, mutual fund unit)

This data enables the Income Tax Department to identify taxpayers who may not be disclosing their complete income or who are engaged in suspicious investment activities.
The reporting mandate applies to investments made by individuals, Hindu Undivided Families (HUFs), and partnership firms, but does not extend to investments made by companies.

Acquisition of Foreign Currency

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 does not include companies.
The subsequent foreign exchange transactions that must be reported to the Income Tax Department include:

• 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

The establishment that provides you with foreign exchange is obligated to notify the Income Tax Department of the transaction. For example, if you buy foreign currency notes and coins from a bank, the bank must report the transaction to the Income Tax Department.
This reporting mandate is in place to deter tax evasion and money laundering. The provided information helps the Income Tax Department identify taxpayers who are either underreporting their complete income or engaging in questionable foreign exchange transactions.

Cash Deposits in Bank Accounts and Reporting Obligations

The Central Board of Direct Taxes (CBDT) has implemented a compulsory rule that requires banks and cooperative banks to notify the tax authorities about cumulative cash deposits of ₹10 lakh or more made by an individual in one or more accounts (excluding current accounts and time deposits) within a financial year. This regulation aims to combat tax evasion and money laundering. To comply with this rule, the bank or cooperative bank is required to submit the following details to the CBDT:

Reporting Details Required by CBDT

• The name and address of the depositor
• The PAN number of the depositor, if provided
• The date of the cash deposit
• The amount of the cash deposit
• The account number(s) in which the cash deposit was made

By providing this information, the CBDT can identify taxpayers who may not be disclosing their entire income or engaging in questionable cash deposits. It’s important to note that this reporting obligation applies to cash deposits in one or more accounts held by an individual, excluding current accounts and time deposits. In other words, even if you make multiple cash deposits that individually are less than ₹10 lakh, if the cumulative cash deposit amount reaches ₹10 lakh or more in a financial year, the bank or cooperative bank is required to notify the CBDT.

Reporting Obligations for Cash Deposits in Fixed Deposits

The CBDT has also specified that banks are obligated to report instances where an individual accumulates ₹10 lakh or more in a fixed deposit (FD) within a financial year, including one or more time deposits (excluding renewals). This reporting requirement aims to deter tax evasion and money laundering. The bank must furnish the following details to the CBDT:

• The name and address of the depositor
• The PAN number of the depositor, if provided
• The date of the cash deposit
• The amount of the cash deposit
• The account number(s) where the cash deposit was made

This information enables the CBDT to identify taxpayers who may be underreporting their total income or engaging in dubious cash deposits. To illustrate this reporting obligation, consider the following examples of cash deposits into time deposits:

• 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.

The cumulative cash deposit in time deposits for the financial year 2022-2023 amounts to ₹10 lakh. As a result, the bank is obligated to report this to the CBDT. It’s important to note that this reporting obligation applies to cash deposits in time deposits made by individuals, HUFs, and partnership firms, excluding companies.

Reporting Requirements for Credit Card Payments

The CBDT has imposed a compulsory requirement on credit card issuers to notify the Income Tax Department about cash payments totaling ₹1 lakh or more for credit card balances. Additionally, if an individual settles credit card dues amounting to ₹10 lakh or more through any means in a fiscal year, these transactions must also be reported to the tax department.
The purpose of this reporting requirement is to combat tax evasion and money laundering. The Income Tax Department can utilize this information to identify taxpayers who may not be accurately disclosing their complete income or engaging in questionable credit card payments. The credit card issuer must provide the following details to the Income Tax Department:

• The name and address of the credit cardholder
• The PAN number of the credit cardholder, if provided
• The payment date
• The payment amount
• The payment method (e.g., cash, cheque, NEFT, etc.)

If you are planning to make a cash payment of ₹1 lakh or more towards your credit card dues, it is important to be aware of this reporting obligation. Additionally, you should be prepared to provide the required payment details to your credit card issuer.

Conclusion

Being aware of these high-value cash transactions that attract the attention of the Income Tax Department is crucial to avoid legal complications. It is important to ensure compliance with reporting requirements and provide accurate information when engaging in these transactions. Failure to do so may result in penalties and scrutiny from tax authorities. By understanding and abiding by these regulations, individuals and entities can avoid unnecessary trouble and contribute to the fight against tax evasion and money laundering.

https://www.estabizz.com/

Disclaimer:

Estabizz Fintech compiled the material in this article using the most recent Acts, Rules, Circulars, Notifications, Provisions, Press Releases, and material applicable at the time. They ensured the completeness and correctness of the material through due diligence. When using this material, users must consult the relevant, applicable legislation. The given data may change without prior notice and does not constitute professional advice. Estabizz Fintech disclaims all liability for any results from the use of this material.