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Cash deposits below ₹10 lakh can still attract Income Tax notice

UPSC / SSC current affairs note · Economy

EconomyTaxation

Why in news

Many taxpayers believe cash deposits below ₹10 lakh are safe from scrutiny, but the Income Tax Department can still issue notices for such deposits. The ₹10 lakh threshold under Rule 114E is only a reporting requirement for banks, not a blanket exemption from tax scrutiny.

Background

Rule 114E of the Income-tax Rules, 1962 requires banks, co-operative banks and post offices to report cash deposits aggregating to ₹10 lakh or more in savings accounts during a financial year through the Statement of Financial Transactions (SFT). This has led to a misconception that deposits below this limit are not monitored.

Key facts

in5points

  1. Rule 114E mandates reporting of cash deposits of ₹10 lakh or more in savings accounts via SFT.

  2. The ₹10 lakh threshold is a reporting trigger for banks, not a limit for tax scrutiny.

  3. Income Tax Department can seek information on any transaction under the Income-tax Act.

  4. Taxpayer's financial information is reflected in Annual Information Statement (AIS) and Form 26AS.

  5. Rule 114E also covers other transactions like cash deposits/withdrawals in current accounts, time deposits, credit card payments, property transactions, and investments.

  6. Notices can be issued under Sections 142(1), 143(2), 148, or 133(6) of the Income-tax Act.

Prelims pointers

  • Rule 114E of Income-tax Rules, 1962
  • Statement of Financial Transactions (SFT)
  • Annual Information Statement (AIS)
  • Form 26AS
  • Sections 142(1), 143(2), 148, 133(6) of Income-tax Act

Mains angles

  • Discuss the distinction between reporting thresholds under Rule 114E and the scope of tax scrutiny under the Income-tax Act.
  • Examine the role of AIS and Form 26AS in enhancing tax compliance and transparency.