How to Avoid Income Tax Notices: Vaishnavi Maganti Explains Key Cash Transactions

We often tend to overdo cash transactions and end up inviting Income Tax notices. What is it that leads to an Income Tax notice and how can we avoid it? Vaishnavi Maganti, a digital creator who specializes in finance, shares insights into five specific cash transactions that can lead to an Income Tax notice.

Depositing Over Rs.10 Lakh in a Savings Account

Depositing large amounts of cash into your savings account can draw the attention of tax authorities. If the total cash deposits exceed Rs.10 lakh in a financial year, your bank will report this to the Income Tax Department. To avoid issues, ensure that your deposits are traceable and well-documented.

Cash Deposits in Bank Fixed Deposits Exceeding Rs.10 Lakh

Making significant cash deposits in bank fixed deposits (FDs) can also trigger an alert. If the cumulative amount exceeds Rs.10 lakh in a financial year, the bank is obligated to report this to the tax authorities. To prevent potential scrutiny, consider using non-cash methods for large FD investments.

Buying Stocks, Mutual Funds, or Bonds in Cash Exceeding Rs.10 Lakh

Purchasing financial instruments such as stocks, mutual funds, or bonds in cash can raise red flags if the amount exceeds Rs.10 lakh. These transactions are closely monitored to prevent money laundering and tax evasion. Opt for digital transactions or cheque payments for large investments to stay on the safe side.

Repaying Credit Card Bills Over Rs. 1 Lakh

Paying off credit card bills with cash can be problematic if the amount surpasses Rs.1 lakh in a single transaction. The Income Tax Department monitors such transactions to ensure that the source of funds is legitimate. It's advisable to settle substantial credit card bills through electronic transfers or bank cheques.

Acquiring Property Valued Over Rs.30 Lakh

Purchasing property with a high cash component can invite tax scrutiny. If the cash payment for acquiring property exceeds Rs.30 lakh, it must be reported to the Income Tax Department. To avoid complications, always document the transaction fully and use bank transfers for large payments.

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By being aware of these cash transaction thresholds, you can avoid unnecessary tax scrutiny and ensure your financial activities remain compliant. Vaishnavi Maganti's advice highlights the importance of using traceable and documented methods for significant transactions to maintain a clear financial record. Stay informed and proactive to keep your finances in good standing.