Income Tax Alert: Avoid These 5 Transactions or Risk Receiving a Notice

From large cash deposits to overseas trips, these high-value transactions can land you in trouble with the Income Tax Department

In today’s digital era, where most payments are traceable, the Income Tax Department keeps a close watch on high-value transactions. Even if you believe you’ve done nothing wrong, certain financial activities can trigger a tax notice, especially if they are not reported or documented properly.

Here are five key transactions that can lead to scrutiny or a tax notice:

1. Depositing Over ₹10 Lakh in Cash in a Bank Account

If you deposit cash of ₹10 lakh or more into your savings account in a financial year, the bank is required to report this to the Income Tax Department. Once flagged, you may be asked to explain the source of the funds. If your response doesn’t align with your declared income, penalties may follow—even if you haven’t committed tax evasion.

2. Paying ₹1 Lakh or More in Cash Towards a Credit Card Bill

Making a cash payment of ₹1 lakh or above to settle your credit card bill can attract attention. The department may question how such large sums were acquired, especially if the source doesn’t match your declared income. Failure to provide a satisfactory answer could lead to penalties.

3. Spending Over ₹2 Lakh Annually on Credit Cards

Even if your payments are not in cash, an annual spend of over ₹2 lakh on credit cards can place you under the tax radar. The department checks whether your spending is proportionate to your declared income. If a mismatch is found, be prepared for a possible inquiry.

4. Investing Over ₹10 Lakh in Shares or Mutual Funds

Large-scale investments, such as ₹10 lakh or more in mutual funds or stock markets are automatically reported to tax authorities by financial institutions. Even if you don’t mention it in your returns, the data reaches the department, which may then issue a notice asking for the source of investment.

5. Purchasing Property Worth ₹30 Lakh or More

Buying property above a certain threshold typically ₹30 lakh, though this may vary based on location requires clear disclosure of the source of funds. Any high-value real estate transaction is reported to the tax department by the registrar’s office. Failure to explain the funding can lead to a detailed income tax investigation.

Other Red Flags

• Spending over ₹2 lakh on foreign travel in a year
• Making FD or RD investments in cash over ₹10 lakh
• Frequent high-value cash transactions without justification

Modern Tracking Tools, Stricter Enforcement

As India moves towards a digitally monitored economy, transactions, especially large ones are easier to track than ever before. Digital integration between banks, credit card issuers, and tax authorities has made it nearly impossible to hide substantial payments or deposits.

A tax notice does not necessarily imply wrongdoing, but it does require a proper explanation. To avoid unnecessary stress, always maintain documentation, file your returns accurately, and report major expenses or investments clearly. Being proactive and compliant is the best way to stay out of trouble with the taxman.