Welcome to our latest article on YieldFinance.net, where I, Satyajit Srichandan, will be discussing how to safeguard yourself from income tax notices by steering clear of cash payments in five crucial transactions. Let’s look more closely.
Table of Contents
1. Limit Cash Deposits in Your Savings Account to Rs. 1 Lakh
According to the Reserve Bank of India, the daily cash deposit limit for a savings account is Rs. 1 lakh. Depositing amounts exceeding this threshold could draw the attention of the Income Tax Department and be regarded as an unscrupulous practice. It is important to note that this limit is universally applicable to all banks in India.
2. Be Cautious with Cash Payments for Credit Card Bills
The Reserve Bank of India allows credit card issuers to set the cash withdrawal limit for credit cards, which typically ranges between 20% and 40% of the cardholder’s credit limit. For example, if your credit card has a limit of Rs. 1 lakh, you can withdraw between Rs. 20,000 and Rs. 40,000 in cash using the card. However, paying credit card dues exceeding Rs. 1 lakh in cash may trigger scrutiny from the Income Tax Department. It’s advisable to maintain a credit utilization ratio of less than 30% on your credit cards.
3. Avoid Depositing More Than Rs. 10 Lakh in Cash into Fixed Deposit Accounts
The Reserve Bank of India mandates that cash deposits in a bank account exceeding Rs. 10 lahks in a financial year must be reported to the Income Tax Department by the bank. These rules are in place to prevent tax evasion and money laundering. The limit is raised to Rs. 50 lakh for current accounts. It’s recommended to conduct significant fixed deposit transactions through traceable means like checks or internet banking.
4. Refrain from Purchasing Mutual Funds or Stocks Exceeding Rs. 10 Lakh in Cash
The Reserve Bank of India closely monitors cash transactions and digital deposits on behalf of the Income Tax Department. If you invest more than Rs. 10 lakh in cash in mutual funds, the stock market, bonds, or debentures, you may attract the attention of the tax authorities. It’s advisable to opt for other traceable methods like checks or Internet banking when investing in mutual funds or stocks.
5. Exercise Caution When Dealing with More Than Rs. 30 Lakh in Cash for Real Estate
The Income Tax Act of 1961 places strict monitoring on cash transactions involving real estate. Paying more than Rs. 20,000 in cash when buying a property could lead to an income tax notice. As per Section 269SS of the Income Tax Act, accepting loans or deposits exceeding Rs. 20,000 in cash is prohibited. Furthermore, under Section 50C and Section 43CA of the Income Tax Act, the value of a capital asset or stock in trade (land or building) must be the stamp valuation authority’s value for computing capital gains. Hence, it’s recommended to avoid cash transactions in real estate. If significant payments are required, consider using a traceable method such as a check or Internet banking.
Conclusion:
Overall, in this article, we discuss how to avoid income tax notices for five transactions. If this article helps your financial journey, then you must visit our other categories on YieldFinance.net.
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