Transaction Limits You Shouldn't Cross To Stay Off Income Tax Dept's Radar

There is no warning bell that can tell you when a financial transaction could bring your Income Tax Return (ITR) under the radar of the Income Tax Department. But if you're not careful, a routine bank transaction or a credit card payment might quietly set off a red flag.

Many people find themselves confused when they receive a tax notice, especially if they have already filed their Income Tax Return (ITR) and paid their dues. But increasingly, notices are being triggered not by unpaid taxes, but by transaction data that does not sit well with what you have reported in your return.

And with more financial institutions now required to report high-value transactions under the Specified Financial Transactions (SFT) framework, the tax department doesn't need to go looking, it's all in the system.

Here is a breakdown of some financial transaction limits that could draw scrutiny if crossed. These are not illegal, but if your paperwork or income declaration doesn't support them, you may have to explain yourself to the taxmen.

Cash deposits in savings account: Rs 10 lakh/year

If your total cash deposits in savings bank accounts cross Rs 10 lakh in a financial year, banks are required to report it. The limit applies to the total cash deposited, not just in one bank, but across all accounts that are held in your name.

It might not raise a flag immediately, but if your declared income doesn't quite justify the volume of cash, it could lead to follow-up questions from the tax department.

Cash deposits in current account: Rs 50 lakh/year

Such high limits are allowed for businesses and professionals operating current accounts but the scrutiny could still happen if such transaction happens without corresponding business income or invoices.

Credit card bill payments: Rs 1 lakh in cash / Rs 10 lakh overall

Paying more than Rs 1 lakh in cash against your credit card dues in a year will likely be reported. Even if you are clearing dues through online or banking channels, if your total annual credit card bill payments exceed Rs 10 lakh, that too is flagged under SFT.

If your annual income is modest but your card usage shows otherwise, you could be asked to explain the source of funds.

Fixed deposit investments: Rs 10 lakh/year

FDs worth Rs 10 lakh or more made in a year are automatically reported by banks. Again, this is not about the investment itself but about whether the money used matches your disclosed earnings. If it doesn't, you will need to provide documentation.

Property purchases above Rs 30 lakh

This one is well-known, but worth reiterating. Any property deal valued at Rs 30 lakh or more is reported to the tax department. And it is not just the sale value; if the stamp duty value of the property is higher, that gets taken into account.

Make sure your ITR and loan documentation are in sync with the property transaction, especially if you have received money from family or friends to fund it.

Foreign travel and forex transactions: Rs 10 lakh/year

If you end up spending more than Rs 10 lakh (in a year) on foreign travel or buying foreign exchange, the taxmen may flag this too. These transactions are tracked under the Liberalised Remittance Scheme (LRS), and banks report them directly.

There is nothing wrong with travelling abroad, but if your spending abroad appears inconsistent with your taxable income, be prepared to explain the difference.

Investments in shares, mutual funds, bonds, debentures: Rs 10 lakh/year per institution

If you are putting more than Rs 10 lakh into mutual funds, equities, or other securities with any single financial institution in a year, that data gets reported too.

This is even more important for people who invest in SIPs or lump sums but have not updated their income declaration or filed their returns correctly.

Cash gifts from non-relatives above Rs 50,000

If you receive more than Rs 50,000 in cash from a non-relative it becomes taxable unless such a transaction falls under specific exemptions (like for marriage). If you receive such a gift and don't report it, it can create trouble later, particularly if the sender's and receiver's transactions are not matching up.

Cash received from anyone over Rs 2 lakh in a single day

Under Section 269ST of the Income Tax Act, 1961, accepting Rs 2 lakh or more in cash from any one person on a single day is not allowed, whether it is a personal loan, a sale, or even a gift. Doing so can attract a heavy penalty, irrespective of whether it is declared in your ITR or not.

Why you should be careful

In earlier years, many of these thresholds flew under the radar, especially if the income declared seemed "reasonable" on paper. However, with AIS (Annual Information Statement) and SFT reporting becoming more robust, almost all high-value transactions are now traceable. Banks, mutual funds, property registrars, even travel and forex agents feed this data into the tax system.

The mismatch issue was highlighted in an Outlook Money article earlier, which explained how taxpayers were being asked to explain lifestyle spends that far exceeded what they had declared as income.

What can taxpayers do?

• Review your AIS before filing returns, since most mismatches show up there

• Avoid unnecessary cash transactions, especially if there is a digital trail option

• Maintain documentation: receipts, agreements, source of funds for big spends

• Don't ignore tax notices and respond promptly with supporting evidence if required

You don't need to avoid spending or investing, but keeping your tax records clean and your transactions consistent with your reported income can save you a lot of hassle later.