High-value transactions can catch IT dept's eye: Here's what to watch for

With big transactions under the scanner, keeping records clear and payments traceable is key to staying smooth with the tax department.'

Individuals making high-value transactions must tread carefully as the Income Tax department keeps a close watch on such deals. Any mismatch between income reported and lifestyle reflected through transactions can trigger a tax notice. Here’s how to stay on the right side of the law.

 

What can trigger scrutiny?

 

According to Amit Bansal, partner, Singhania & Co., the tax department pays special attention to transactions that appear inconsistent with a person’s income profile. These include:

 

• Cash deposits exceeding Rs 10 lakh in a savings account in one financial year 
• Credit card payments above Rs 1 lakh in cash or over Rs 10 lakh by cheque or digital modes 
• Investment in mutual funds, stocks, bonds exceeding Rs 10 lakh in a year 
• Purchase or sale of immovable property worth Rs 30 lakh or more 
• Foreign exchange transactions crossing Rs 10 lakh annually 
• Large insurance premiums or unusually high-value donations

 

“These transactions are routinely flagged under the Statement of Financial Transactions (SFT) filed by financial institutions, enabling tax authorities to detect discrepancies,” says Bansal. 

 

Mandatory reporting limits to know

 

Bansal explains that financial entities must report the following under SFT:

 

• Savings account deposits: Over Rs 10 lakh 
• Current account deposits: Over Rs 50 lakh 
• Credit card payments: Above Rs 10 lakh annually 
• Mutual funds, debentures, shares: Over Rs 10 lakh invested in a financial year 
• Property transactions: Valued at Rs 30 lakh or more 
• Foreign exchange purchases: Over Rs 10 lakh in a year

 

Knowing these thresholds helps taxpayers understand what activity might be visible to the tax department even if they haven’t disclosed it themselves.

   

How to stay compliant?

 

Taxpayers must follow best practices to avoid triggering a notice. Kunal Savani, partner, Cyril Amarchand Mangaldas, advises individuals to maintain complete and accurate records. “File returns timely, disclose all sources of income including exempt income, and keep documentation like bank statements, invoices, and proof of fund sources,” says Savani.

 

Bansal adds that ensuring payments are made through traceable banking channels, verifying entries in the Annual Information Statement (AIS) and Form 26AS, and aligning your return details with actual transactions are critical.

 

“Professional help is recommended for big transactions like property deals or foreign remittances,” he says.

 

Received a tax notice? Here’s what to do

 

“Don’t panic,” says Bansal.

 

The first step is to read the notice carefully, understand the issue raised, and gather all relevant documents, like property papers, bank records, or transaction proofs. Timely and transparent response via the Income Tax e-filing portal is essential.

 

“If the case is complex, consult a chartered accountant to ensure your response is accurate and comprehensive,” Bansal suggests. Timely cooperation can resolve most issues without further escalation.

 

Bottom line: If you’re making high-value transactions, ensure you’re not only financially prepared. But also tax-compliant. The taxman knows more than you think.