The Income Tax Department analyzes and scrutinizes data/records in order to prevent tax evasion. It consistently monitors details received from all the sources. It keeps a strict eye on all the high value transactions or specified value transactions for the same purpose. Therefore, the taxpayers must understand these basic high value transactions and keep in mind before filing their returns. In this blog, we discuss such 10 high-value transactions that the income-tax department especially keeps track of. Furthermore, we shall discuss some basics of how this data is received by the income tax department and how it deals with it.
Table of Contents
How Does the Income Tax Department Monitor Taxes?
As per section 285BA of the Income Tax Act, specified persons are required to furnish the statement of specified financial statements in Form 61A. The form is required to be filed before 31st May of the next year for every previous year. On receiving the details, the income tax department verifies these with the income tax returns filed by the assessee to check whether the expenditure/transactions reported in the form 61A are justifiable or not. If the department does not find it justifiable then it issues a notice to the particular assessee and further takes the necessary action.
Transactions Monitored by Income Tax Department
1. Relating To Banking Companies and Cooperative Banks
A banking company or a cooperative bank is required to provide the details relating to the following transactions along with the specified limits in Form 61A.
To further understand how fixed deposits can affect your tax liabilities and potential savings, check out our detailed guide on using a Fixed Deposit (FD) Calculator – TDS Savings. It can help you optimize your investment strategy by calculating the tax deductions on your FD earnings.
| Particulars | Transaction Type | Transaction Limit |
| Savings Account | Cash deposit or Withdrawal during a financial year | 10,00,000 |
| Current Account | Cash deposit or Withdrawal during a financial year | 50,00,000 |
| Fixed Deposit | Total fixed deposits during the year, both cash or other modes than cash (Renewal not included) | 10,00,000 |
| Credit Card | Repayment of credit card bill in cash during a financial year | 1,00,000 |
| Credit Card | Total repayment of credit card bill in cash or through other modes during a financial year | 10,00,000 |
| Pay Orders/Demand Drafts | Purchase of demand drafts in cash during a financial year | 10,00,000 |
2. Relating to Investment in a Particular Company
A company shall provide the required details to the income tax department in case of the following transactions exceeding specified limits:
| Particulars | Transaction Type | Transaction Limit |
| Mutual Funds | Investment in mutual funds of a company during the year in cash or any mode other than cash | 10,00,000 |
| Bonds/Debentures | Investment in bonds/debentures of a company during the year in cash or any mode other than cash | 10,00,000 |
| Shares | Investment in shares including share application money of a company during the year in cash or any mode other than cash | 10,00,000 |
3. Share Buyback
If a listed company buybacks shares of an amount more than Rs. 10,00,000 from a person, then that listed company is required to provide the detail in Form 61A as a specified financial transaction.
4. Immovable Property
In case of purchase or sale of the immovable property exceeding Rs. 30,00,000, then the registrar or the sub-registrar appointed under Registration Act, 1908, is required to provide the information to the income tax department. Also, note that Rs 30,00,000 is the stamp duty value or the value mentioned in the registry irrespective of the market value. Market value may be high.
5. Foreign Currency
If a person purchases foreign currency or expenses incurred in foreign currency via debit cards or traveller’s cheque or any other instrument for more than Rs 10,00,000 in a year, then a foreign currency dealer is required to report this transaction to the income tax department. It is very necessary as the income tax department shall verify that his income should be able to justify his expenses on foreign visits.
6. RBI Instruments
Cash payment for purchasing prepaid RBI bonds or other instruments for the amount exceeding Rs. 10,00,000 during a year shall be reported to the department. If you’re interested in how deferred taxes impact corporate finance, dive into our comprehensive explanation on All About DTA & DTL – Deferred Tax Asset. It breaks down the complexities of deferred tax assets and liabilities, enhancing your understanding of corporate tax planning.
7. Cash Payment > Rs 2,00,000
If a person makes a payment for any goods or service in cash, of an amount exceeding Rs. 2,00,000 during a financial year to a person who is liable to get his accounts audited under section 44AB of the Income Tax Act, then such person shall report such transaction to the income tax department. For those dealing with investments in shares and mutual funds, it’s crucial to understand the implications of capital gains tax. Explore our detailed analysis on Tax on Capital Gain – STCG, LTCG, and Dividends, where we clarify how short-term and long-term gains are taxed, helping you plan your investments wisely.
8. TDS or TCS Statements
The income tax department verifies whether the return filed by the assessee is in line with the TDS/TCS statements or not. Many times, there are cases when the income reflects in the TDS statement or 26AS but is not disclosed by the assessee in the return. In such cases, the department issues notice to the assessee.
9. Change In Ratios
The department compares the basic ratios like gross profit ratio, net profit ratio, turnover, etc., from the previous years and accordingly, issues notice if it finds a major variation from the previous year.
10. Others
The above list is not exclusive. There are various other transactions like the purchase of jewelry, payments to hotels, donations, electricity consumption, payment of life insurance premiums, health insurance premiums, etc.
Conclusion
Please note that this article is just to aware the innocent assessee who sometimes knowingly or unknowingly happens to indulge in such transactions and then face notice from the income tax department. It is not to promote tax evasion.
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FAQs
The Income Tax Department monitors high-value transactions such as large cash deposits/withdrawals, high-value credit card payments, significant investments in mutual funds, bonds, or shares, purchase/sale of property above ₹30 lakhs, and substantial foreign currency purchases. These are reported by banks, companies, and other specified entities to ensure tax compliance.
The Income Tax Department monitors taxes by analyzing data from Form 61A, filed by specified entities detailing high-value transactions. This data is cross-verified with the taxpayer’s income tax returns to detect discrepancies and prevent tax evasion.
Taxpayers should accurately report high-value transactions like large property purchases, significant investments, or cash payments exceeding ₹2 lakhs. Discrepancies between reported transactions and actual returns may trigger a notice from the Income Tax Department.
If there’s a discrepancy between your reported transactions and your income tax returns, the Income Tax Department may issue a notice asking for clarification, and further action may be taken depending on the response and findings.
The Income Tax Department monitors foreign currency transactions to ensure that a taxpayer’s income justifies their expenses on foreign travel or purchases. Transactions exceeding ₹10 lakhs in foreign currency are scrutinized to prevent tax evasion and ensure accurate reporting of income.
