The Income Tax Department has sent tax notices to individuals whose accounts are showing low fund withdrawals. But what are low withdrawals a problem, you may ask. It is. Here is what you should do to stay clear.
High-income individuals need to ensure that their withdrawals and digital transactions align with their declared income to avoid scrutiny from tax officials. “A significant mismatch between the income report in the tax returns by the taxpayers and their spending patterns, such as low cash withdrawals or minimal digital transactions despite high earnings, may raise concerns about undeclared income, leading to potential scrutiny or tax investigations,” says Suresh Surana, a Mumbai-based chartered accountant.
To stay compliant with tax regulations and avoid scrutiny, taxpayers should take certain precautions.
They must accurately disclose all sources of income in their tax returns. This includes earnings from salaries, rental properties, capital gains, business profits, interest, and dividends. Neglecting to disclose all sources of income or inaccurately reporting earnings may heighten the chances of facing an audit.
To avoid potential scrutiny, individuals should keep thorough records of their financial activities, including cash withdrawals, UPI transactions, credit card spending, and other key payments. Try to maintain proper documentation. Do not underreport income.
How To Stay Out Of Trouble
Declare All Income: You must declare all your income in a transparent manner, such as your salary, rental earnings, stock market gains. You must make sure it’s all reflected in your tax return.
Spending Should Not Exceed Your Earnings: Your spending should not be more than your earnings. If you buy very expensive or luxurious things, with a meagre salary, it might attract the attention of the taxpayers.
Expensive Buys: If you are making luxury purchases such as a high-end car or a high-end home, see if it aligns with your earnings.
Large Cash Deposit: If you frequently deposit large amounts such as Rs 50 lakh in your current account or Rs 10 lakh in your savings account, your bank reports it.
Stock And Crypto Trading: If you do such trading, you must make sure your tax details reflect this.