Here Are 6 Transactions That Can Attract An Income Tax Notice
The income tax department monitors high-value transactions, and often during Diwali or otherwise too, these transactions might cross a certain threshold. Here are six transactions that can attract an income tax notice should you fail to report them in your income tax return (ITR)
Diwali is one big festival where people exchange gifts with family, relatives, and friends. But at times, the monetary value of these gifts could cross the threshold limit. If unreported in your income tax return, or should you fail to quote your PAN where it is needed in accordance with the law, it is certain to attract the attention of the tax authorities and invite an income tax notice.
Every bank and financial institution in India is mandated by law to report certain specified transactions executed by individuals to the income tax department.
Mihir Tanna, the associate director, of SK Patodia and Associates, a Mumbai-based CA firm, says that the income tax department has introduced a provision of a statement of financial transaction (SFT) to track high-value transactions undertaken by individuals.
What the department does is it matches the SFT data with the one provided by taxpayers in their ITR, and, in case of a mismatch, issues a notice and allows the taxpayer an opportunity to provide an explanation for the same.
So, here are the instances that could attract an income tax notice.
Using Credit Card For Big Purchases: Should you decide to pay your credit card bill in cash (Rs 1 lakh or more) or through another mode, such as cheque, or bank transfer (Rs 10 lakh or more) in a financial year, then the card issuing bank has to mandatorily report the same to the income tax department.
Gopal Bohra, the partner, of NA Shah Associates, a Mumbai-based tax advisory and legal firm, says that generally, the department issues notice to taxpayers if the credit card expenses “are disproportionate to the returned income.”
Bohra further explains that sometimes a person might be holding a credit card which is for the usage of the firm or other company where they might work. So, the company expenses done through this card might get reported to the income tax department if done above the limits specified. Sometimes, it may also happen that you lend your credit card to a friend who then reimburses you the money he/she spent for his/her shopping needs on your credit card.