Top 7 cash transactions that can attract income tax notice are listed out in the following:
1] Savings/Current account: For an individual, the cash deposit limit in savings account is ₹1 lakh. If a savings account holder deposits more than ₹1 lakh in one’s savings account, then the income tax department may send income tax notice. Similarly, for current account holders, the limit is ₹50 lakh and on violation of this limit may also liable for income tax notice.
2] Credit Card bill payment: While paying credit card bill, one should not cross ₹1 lakh limit. Violation of this cash limit in credit card bill payment doesn’t go well with the Income Tax Department.
3] Bank FD (fixed deposit): Cash deposit in bank FD is allowed but it should not go beyond ₹10 lakh. Violation of this ₹10 lakh limit is also not advisable for a bank depositor making cash deposit in one’s bank FD account.
4] Mutual fund/stock market/bond/debenture: People investing in mutual funds, stocks, bond or debenture must ensure that its cash infusion in the above mentioned investment options doesn’t go beyond ₹10 lakh limit. Failing to maintain this cash infusion limit may lead to income tax department checking your last Income Tax Return (ITR).
5] Real estate: While buying or selling a property, one must make sure that cash transaction above ₹30 lakh is questionable as income tax department discourages cash transaction beyond this limit in a real estate deal.
6. Loans : If someone is taking a loan from a financial institution or even from a friend in cash, then the amount can not exceed Rs 20,000. The same rule applies to repayment of the loan. For loan repayment of Rs 20,000, the person must pay through the banking channel.
The maximum cash permitted in a property transaction, too, is Rs 20,000. Even if a seller is taking an advance, the limit is the same.
Worth mentioning here is that in most cases, the onus is on the receiver to not accept cash. Typically, the income tax department levies the penalty on the receiver, equivalent to the amount received in cash. It’s not allowed even if you receive the money in cash and immediately deposit it in the bank account.
However, some transactions are out of this purview. If you run a business and want to deposit over Rs 2 lakh in the bank account which you have received through multiple transactions by selling your goods and services, then it is allowed.
7. Cash transaction limit on business expenditure
Companies, firms are also not allowed to accept or pay cash beyond a limit. If a business owner transacts for more than Rs 10,000 in cash, then that amount can not be claimed as an expenditure