Which Transactions Are Checked During Income Tax Scrutiny?

Transactions Are Checked During Income Tax Scrutiny

Transactions Are Checked During Income Tax Scrutiny When it comes to income tax compliance, taxpayers often wonder which transactions might catch the attention of tax authorities. The Income Tax Department continuously monitors various financial transactions to ensure taxpayers declare their income accurately and pay the appropriate taxes. Here’s a breakdown of the key transactions that are scrutinized:

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1. Cash Deposits in Bank Accounts

• High-Value Deposits: Transactions Are Checked During Income Tax Scrutiny  If you deposit cash exceeding ₹10 lakhs in a savings account in a financial year, it is reported to the Income Tax Department.
• Current Accounts: For current accounts, cash deposits exceeding ₹50 lakhs annually are monitored.
• Suspicious Patterns: Frequent, large cash deposits that don’t match declared income can trigger scrutiny.

2. Cash Transactions in Property Deals

• If you buy or sell immovable property worth ₹30 lakhs or more, the transaction is reported to the tax authorities.
• Payment of property consideration partly or fully in cash is closely scrutinized to ensure no black money is involved.

3. UPI and Digital Transactions

• While UPI and other digital payments are promoted for transparency, unusual or high-value transactions may attract attention if they don’t align with your income profile. Transactions Are Checked During Income Tax Scrutiny
• Excessive use of digital wallets or UPI payments for business expenses without proper records may raise flags.

4. Credit Card Payments

• High-Value Payments: Credit card payments exceeding ₹1 lakh per transaction are monitored. Annual payments of ₹10 lakhs or more across all cards are also flagged.
• Source of Funds: Large payments without matching income can invite a tax query.

5. Cash Expenditures

• Spending over ₹2 lakhs in cash for a single transaction, such as purchasing gold, jewelry, or luxury goods, is reported.
• Payments made in cash exceeding this limit for medical expenses, travel, or educational purposes may also attract scrutiny.

6. Share Market and Mutual Fund Investments

• Large Transactions: Investments in shares, mutual funds, bonds, or debentures exceeding ₹10 lakhs are reported. Transactions Are Checked During Income Tax Scrutiny
• Capital Gains: Profits from frequent trading or large capital gains without proper reporting can trigger scrutiny.

7. Foreign Transactions

• Foreign Travel: If you spend more than ₹2 lakhs on foreign travel in a financial year, it’s reported.
• Foreign Remittances: Outward remittances under the Liberalized Remittance Scheme (LRS) exceeding ₹7 lakhs per year are monitored.

8. Business Transactions

• Cash Payments: Payments exceeding ₹10,000 per day in cash to a single person are not allowed as per Section 40A(3) of the Income Tax Act.
• Turnover Reporting: Businesses underreporting turnover or showing significant discrepancies between GST filings and income tax returns are flagged.

9. Donations and Charitable Contributions

• Large donations or contributions claimed under Section 80G must be supported by proper receipts.
• Cash donations exceeding ₹2,000 are not eligible for deduction and may lead to scrutiny.

10. Other Reported Transactions

• Fixed Deposits: Interest from fixed deposits should match your declared income. Banks report fixed deposit interest exceeding ₹10,000 per year.
• Insurance Premiums: Payments exceeding ₹1 lakh annually for life insurance premiums are reported.

How to Stay Compliant?

• Maintain Records: Keep proper records for all high-value transactions, including receipts, invoices, and agreements.
• File Accurate Returns: Ensure your income tax returns reflect all sources of income and match the transactions reported by banks or other financial institutions.
• Avoid Cash Transactions: Prefer digital or bank transactions to ensure transparency.
• Stay Updated: Keep track of changing income tax rules and ensure compliance.

Conclusion

The Income Tax Department uses various tools and technologies to monitor financial transactions and detect discrepancies. By staying aware of the transactions that are monitored and maintaining proper documentation, taxpayers can ensure smooth compliance and avoid unwanted scrutiny. Always consult a professional accountant or tax advisor for accurate guidance tailored to your financial activities.

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