Income Tax Alert: Transactions That Can Get You an Income Tax Notice

The Income Tax Department of India closely monitors financial transactions to detect tax evasion and ensure compliance with tax laws. Someone could be at risk if they create any discrepancies or break the law. Certain transactions can cause you to deposit or withdraw cash exceeding ₹10 lakhs in a savings account or ₹50 lakhs in a current account in a financial year. In that case, the warning led to an income tax notice. Here are seven types of transactions that can trigger income tax notices:

1. High-Value Cash Deposits and Withdrawals

The government keeps an eye on large cash transactions to curb black money. Suppose you deposit or withdraw cash exceeding ₹10 lakh in a savings account or ₹50 lakh in a current account in a financial year. In that case, banks report these to the Income Tax Department, potentially leading to a notice.

2. Frequent or Large Transactions in Your Demat Account

If you are actively trading in stocks or derivatives but fail to report the income from these transactions, the tax authorities may issue a notice. Unusually high trading volumes, particularly without corresponding tax filings, can attract scrutiny.

3. Credit Card Bills Exceeding ₹10 Lakh

If you pay a credit card bill of more than ₹10 lakh in a financial year, the Income Tax Department may inquire about your source of income. Even multiple credit cards with high spending may trigger a notice if the declared income does not justify the expenditure.

4. Buying or Selling Property Above ₹30 Lakh

Real estate transactions are under strict surveillance. The details are reported to tax authorities if you buy or sell a property worth more than ₹30 lakh. Any mismatch between your reported income and the transaction value could result in an income tax notice.

5. High-Value Mutual Fund or Share Investments

Investing large amounts in mutual funds, stocks, or bonds exceeding ₹10 lakh in a financial year can lead to scrutiny. The tax department cross-checks these transactions with your declared income and tax filings to ensure consistency.

6. Foreign Transactions and Overseas Investments

If you send or receive a large amount of money abroad, invest in foreign assets, or hold undisclosed overseas accounts, the Income Tax Department may issue a notice. Transactions exceeding ₹7 lakh under the Liberalized Remittance Scheme (LRS) require reporting and may attract scrutiny.

7. Unusual or Large Cash Transactions in Business Accounts

If your business involves significant cash transactions, sudden large deposits or withdrawals may raise suspicion. The tax authorities monitor businesses that engage in excessive cash dealings to detect possible tax evasion.

How to Avoid an Income Tax Notice?

• Report all high-value transactions accurately in your income tax return (ITR).

• Maintain proper documentation and justification for large transactions.

• Ensure tax is deducted at source (TDS) where applicable.

• Use banking channels for large transactions and avoid excessive cash dealings.

• File your ITR correctly and on time to prevent discrepancies.

By staying compliant with tax regulations and maintaining transparency, you can avoid unwanted notices from the Income Tax Department.