In India, high-value cash transactions are regulated by income tax laws to monitor cash flow and prevent illegal financial activities. According to these regulations, any cash deposit of INR 10 lakh or more into a savings account requires notifying tax authorities. Moreover, the threshold for notification has been raised to INR 50 lakh for current accounts. Although high-value cash transactions are not immediately taxed, financial institutions are mandated to report transactions exceeding these limits to the Income Tax Department.
Purpose of Income Notice for Cash Deposits
The Income Tax Department employs various data analysis techniques to identify individuals who may be evading taxes or engaging in financial activities that raise red flags. Collaboration with numerous government agencies enables the cross-referencing of financial transactions and expenditures, making it easier to detect potential tax evasion or discrepancies. This collaborative approach seeks to uncover individuals who spend significant amounts of money but fail to file income tax returns or understate their income.
The following transactions are on the list of those for which a taxpayer might receive an Income Tax Notice for Cash Deposits:
| Sr. No. | Transactions | Threshold (Rs) | Authority concerned |
| 1. | Cash deposit in fixed deposit account. | 10,00,000 | Banks must submit Form 61A, or Statement of Financial Transactions, to the Director of Income Tax in order to notify him of the transaction if the amount deposited is greater than the specified limit. |
| 2. | Cash deposit or withdrawal in savings bank account. | 10,00,000 | Banks must submit Form 61A, or Statement of Financial Transactions, to the Director of Income Tax in order to notify him of the transaction if the amount deposited is greater than the specified limit. |
| 3. | Cash deposit or withdrawal in a current account. | 50,00,000 | Banks must submit Form 61A, or Statement of Financial Transactions, to the Director of Income Tax in order to notify him of the transaction if the amount deposited is greater than the specified limit. |
| 4. | Sale or purchase of an immovable property. | 30,00,000 | Any transactions that exceed the cap must be reported by the property registrar/sub-registrar using Form 61A. |
| 5. | 5. Cash investments in bonds, debentures, mutual funds, and shares. (Reporting is not necessary if the transaction involves the transfer of money from one scheme to another.) | 10,00,000 | Mutual fund trustees are required to submit Form 61A to the stock exchange in order to report transactions that exceed the cap. |
| 6. | Payment of credit card bill in cash. | 1,00,000 | Banks are required to submit Form 61A to report transactions that exceed the cap. |
| 7. | Payment of credit card by any mode other than cash such as NEFT, cheque etc. | 10,00,000 | Banks are required to submit Form 61A to report transactions that exceed the cap. |
| 8. | Sale of foreign currency | 10,00,000 | Banks are required to submit Form 61A to report transactions that exceed the cap. |
| 9. | Cash payment for purchasing bank draft or prepaid RBI instruments | 10,00,000 | Banks are required to submit Form 61A to report transactions that exceed the cap. |
High-Value Transactions and Reporting
When high-value transactions are made in higher denominations or exceed a predetermined threshold, taxpayers are required to report them in their income tax returns. Failure to do so can trigger an income tax notice for cash transactions, potentially resulting in penalties or further investigations by tax authorities. The Income Tax Department collaborates with various governmental agencies to gather financial data about taxpayers who engaged in such high-value transactions but failed to disclose them when filing an income tax return. This joint effort aims to identify individuals who may be evading taxes or not fully complying with tax regulations.
Form 61A and Its Significance
Form 61A, formerly known as the Annual Information Return, plays a crucial role in this process. Taxpayers are required to provide a statement detailing their “specified financial transactions,” or SFTs, for a particular financial period. This statement is prepared in accordance with Section 285BA of the Income Tax Act to avoid potential cash deposit income tax notices. The nature and amount of the transactions must be reported on Form 61A as per Rule 114E of the Income Tax Rules of 1962. By adhering to this process, taxpayers can facilitate potential refund claims when necessary and maintain accurate records of tax filings, reducing the risk of receiving a cash deposit notice of income tax.
Filing Deadline and Penalties
Taxpayers must submit Form 61A by the end of May each financial year. Failure to do so may result in penalties. If an individual neglects to file or submit Form 61A, regulatory authorities will issue a formal warning, providing a grace period of 30 days. Following this, penalties may be levied for non-compliance, with provisions for rectifying errors within a stipulated time frame.
Advance Ruling on Income Tax and Non-Resident Applicability
Section 245N (a) of the Advance Ruling on Income Tax applies to non-residents and a particular class of individuals, such as public sector units. It is not applicable to residents.
Non-Compliance Consequences
In cases where individuals fail to reply to an Income Tax Notice u/s 245 within 30 days, the demand may automatically be subtracted from any refund due. Additionally, penalties may be imposed for non-compliance.
Filing Revised Returns and Jurisdictional Officers
Taxpayers have the option to file a Revised Return to rectify errors or discrepancies in their initial income tax returns. This can be done within a specified time frame with provisions for e-verification. In addition, clear guidelines exist for locating jurisdictional officers and understanding the circumstances under which income tax returns cannot be revised.
Staying compliant with these regulations is crucial to avoid unexpected cash deposit income tax notices and ensure a smooth tax filing process in India. Understanding the nuances of high-value cash transactions and income tax notices empowers taxpayers to fulfill their obligations and minimize the risk of penalties or further scrutiny by tax authorities.
