Savings Account Tax Rule: Experts say that there are certain types of transactions that banks and the tax department specifically track. If these transactions don’t match your income, you may receive a notice.
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Savings Account Tax Rule: You make payments, transfers, and cash withdrawals from your savings account every day, but did you know that even these everyday tasks can sometimes come under the scrutiny of the Income Tax Department? If you think that a savings account is simply a means of storing and spending money, know that these days the Income Tax Department can monitor every major transaction. Especially if large amounts of money are frequently flowing into and out of your account, or you’re making expenses that don’t match your income.
You may receive an Income Tax Notice
Experts say that certain types of transactions are specifically tracked by banks and the tax department. If these transactions appear inconsistent with your income, you may receive a notice.
According to an ET report, even seemingly innocuous transactions can sometimes lead to an Income Tax investigation, according to chartered accountants Abhishek Soni and Tarun Kumar Madan.
Let’s explore 10 reasons that could put your savings account on the tax department’s radar.
Deposited large amounts of cash in the bank?
If you deposit ₹10 lakh or more in cash in a single financial year, the bank reports it to the Income Tax Department. This isn’t illegal, but you may have to disclose its source. Keep receipts related to gifts, property sales, or business income.
Made a large credit card payment?
If you made a total payment of more than ₹1 lakh in cash or a total payment of more than ₹10 lakh on a credit card in a given year, this is reported. The department checks whether your lifestyle matches your income as per your tax return.
Frequent or large cash withdrawals
Repeated large withdrawals from your account, or a sudden increase in cash flow, may also alert the bank. This may raise questions, especially if it doesn’t match your income.
Property Deals Worth Rs 30 Lakh or More
If you’ve bought or sold a property valued at Rs 30 lakh or more (whether market rate or stamp value), the registrar reports it. The tax department looks at where you got the money.
Sudden Transactions in Inactive Accounts
If a previously inactive account suddenly becomes active and a large transaction occurs, the bank may flag it. In such a situation, keep documents related to business, inheritance, or other valid reasons.
Did you spend more money abroad or did you receive more money?
If you make foreign transactions of ₹10 lakh or more in a year, such as international card payments or forex, this could lead to an income tax notice, especially if your income appears lower than that.
Difference between bank interest and ITR
If the interest reported by your bank doesn’t match your income tax return, you may receive a notice. Check your interest against Form 26AS and AIS (Annual Info Statement) and ensure everything is accurate.
Savings account interest is less, don’t hide it.
Even if your interest is less than ₹10,000, it will still be reflected in the AIS. If you don’t show it in your return, you may receive an automatic notice due to data mismatch.
Have multiple accounts, but haven’t added the interest?
Having multiple savings accounts isn’t a problem, but it’s important to add the interest on all of them and show it in your ITR. The system is very sensitive and can catch even small errors.
Don’t get caught making payments for others.
If you paid for someone else with your card during the festive season and they returned the money to you in cash, that could be tracked. Once this money is credited to your account, you could exceed your reporting limit and receive a tax notice.
How to avoid the Income Tax Department’s scrutiny?
The tax department monitors all major transactions through the PAN-based auto-reporting system. Therefore, you should keep these things in mind:
- Check your AIS and Form 26AS before filing your ITR.
- Keep documentation for every transaction.
- When making transactions for others, keep everything clear and tracked.
Read More: Cash Transaction Rule: Penalty will be levied for cash transactions exceeding this limit in one day.
