Unlike digital transactions, cash transactions do not leave any footprints. The Indian tax department has adopted an aggressive stance against cash transactions to curb tax evasion and money laundering and encourage digital transactions.

Along with banks, brokerages, mutual fund houses, and property registrars, the IT department keeps a close tab on high-value cash transactions. Individuals making big-ticket payments in cash beyond a certain threshold are also sent tax notices asking for clarifications. Watch out for these five cash transactions to avoid receiving IT notice.

  1. Cash Deposits in Savings Bank Account

Cash deposits in savings bank accounts are capped at ₹1 lakh. Your bank might inform the tax department if you deposit more than ₹1 lakh into your savings account at once, and it could also lead to a tax notice. The annual cash deposit limit for an individual savings account is ₹10 lakhs.

If the cash deposits and withdrawals from a savings account surpass the ₹10 lakh limit, the account holder should inform the tax authorities. Similarly, the cash deposit limit for current bank accounts is capped at ₹50 lakhs.

  1. Depositing Cash in Bank FD

While you can book a bank Fixed Deposit (FD) with cash, the deposit amount should not be more than ₹10 lakhs in one or more FDs. Banks are advised to inform the Central Bureau of Direct Taxes (CBDT) if an individual has deposited more than ₹10 Lakh in cash for opening an FD account.

After examining your transaction, the tax department might also send you a notice asking for proof regarding the source of funds.

  1. Paying Credit Card Bills in Cash

The CBDT has also made it mandatory for credit card providers to provide details of the customers who make cash payments upwards of ₹1 lakh against their credit card bills. If a customer makes a payment of ₹10 lakhs or more in a financial year for settling credit card bills, it should also be reported to the tax authorities.

When filing tax returns, cardholders are also advised to furbish details of big-ticket credit card transactions to the tax authorities.

  1. Purchasing or Selling Immovable Property in Cash

Cash transactions involving the purchase or sale of any immovable property upwards of ₹30 lakhs will also be reported to the tax department by the property registrars. It is mandatory to mention such property transactions on Form 26AS when filing tax returns.

If you are buying or selling real estate worth more than ₹30 lakhs, ensure that you follow all the tax laws as the tax returns of the buyers and sellers are closely examined by the IT department. Any errors or missing information could lead to a tax notice. 

  1. Cash Transactions Related to Shares, Mutual Funds, Bonds, and Debentures

If you invest in shares, mutual funds, bonds, and debentures, ensure that your cash investments in a financial year are under ten lakhs. If you invest more than ₹10 lakhs in cash in these investment options in a financial year, financial institutions can report the same to the income tax department.

The IT department will examine your last tax return and might serve you a notice in case of any discrepancies.

Prefer Digital Transactions to Avoid a Tax Notice

One of the easiest ways to avoid receiving a tax notice is to prefer digital transactions as much as possible. If there are instances where cash payment is the only choice, ensure that you always follow the limits prescribed by the tax department.

Only when the government, tax department, and the public work together can we curb the menace of tax evasion and money laundering and build a stronger and more prosperous country.