With India’s economy undergoing rapid digitisation, the Income Tax Department (ITD) is intensifying surveillance on financial transactions—whether done digitally or in cash. According to chartered accountants and financial experts, individuals must now exercise greater caution while filing their Income Tax Returns (ITRs) or engaging in high-value payments.
The rise of automated data-sharing systems between banks, credit card companies, and the ITD has eliminated the anonymity that once accompanied cash-heavy transactions. “Today, every rupee can leave a trail,” said CA Ajay Bagadia, warning that even minor lapses could result in tax notices and fines.
Here are seven financial activities that could trigger a red flag from the Income Tax Department.
1. Paying Credit Card Bills in Cash Above ₹1 Lakh
If you pay your credit card dues—especially those exceeding ₹1 lakh—in cash, it immediately raises a compliance alert. CA Bagadia explains: “If Raju pays his ₹1 lakh credit card bill in cash, the system might ask: where did this cash come from? Why not through a traceable bank channel?” The department views such payments as possible signs of undisclosed income or black money.
2. Depositing Over ₹10 Lakh Cash in a Bank Account
Depositing large sums of cash—especially ₹10 lakh or more—into a bank account is almost guaranteed to draw scrutiny. According to Bagadia, the bank automatically reports this to the Income Tax Department through their regulatory reporting mechanisms. Tax officers may then issue a notice demanding income proof to justify the deposit.
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3. High Credit Card Expenditure vs. Declared Income
If your annual credit card expenditure exceeds ₹2 lakh, and your declared income doesn’t align with that level of spending, expect a query. The ITD compares your lifestyle and expenditure patterns against your declared earnings. “A mismatch invites a probe,” Bagadia warns.
4. Investing More Than ₹10 Lakh in Stocks or Mutual Funds
Whether it’s direct investment in shares or mutual funds, putting more than ₹10 lakh into financial markets can attract attention. CA Santosh Mishra notes that banks and brokers are required to report such high-value investments to the ITD. If the source of funds isn’t clear in your ITR, a notice may follow.
5. Cash Payments While Purchasing Property
If you purchase real estate and make any part of the payment in cash—even ₹5 lakh or ₹10 lakh—it can be flagged. The department may ask: “Where is the cash receipt? Who received it? Is it shown in the sale deed?” Properties worth ₹20 lakh, ₹30 lakh or more are often monitored, especially if undervaluation or cash transactions are suspected.
6. Spending Over ₹2 Lakh on Foreign Travel
Foreign travel is another area under close watch. Spending over ₹2 lakh on overseas trips without corresponding income may prompt the ITD to question the funding source. “They see the flight, the hotel, even the forex purchase,” says Bagadia. “Everything gets reported.”
7. Creating FDs or RDs with Cash Over ₹10 Lakh
If an individual creates Fixed Deposits (FDs) or Recurring Deposits (RDs) with cash exceeding ₹10 lakh, this is also reported by banks. The department can then raise questions like: “Why is this large amount deposited in cash? What’s the source?” The assumption often leans toward undeclared or black income.
Getting a Tax Notice? Don’t Panic, Say Experts
If you receive a notice, it doesn’t automatically mean you’ve broken the law. CA Abhinandan Pandey advises that the best course is to respond with proper documentation: salary slips, sale receipts, gift deeds, or bank statements. “Never lie,” he adds, “and always consult a Chartered Accountant to craft a truthful, informed response.”
The message from experts is clear: in the era of PAN-Aadhaar linkage, AI-based tracking, and digital banking, no transaction goes unnoticed. Staying compliant and transparent is not only prudent—it’s essential.