Do I Get Income Tax Notices for Current Account Transactions?

Posted on Tuesday, October 15th, 2024 | By IndusInd Bank

Current accounts are essential for businesses. These accounts offer flexibility and allow a large volume of transactions. This makes it easier for business owners to handle their finances. 

However, certain transactions through a current account might attract attention from tax authorities. It is crucial to be aware of such transactions and other aspects to avoid getting an income tax notice. 

This article explains the aspects that may lead to income tax notices and how to manage them. 

Current Account Aspects That Might Attract Income Tax Notices

Banks design current accounts to manage the frequent transactions inherent in business operations. However, it is important to be aware of the following aspects:

1. High-Value Transactions

Current account transactions involving large amounts of money can attract an income tax notice. Large withdrawals or transfers are some examples. The tax authorities keep a check on high-value transactions. Hence, ensure they correspond with your business’ reported income and financial statements.

2. Sudden Spikes in Transactions

A sudden spike in deposits or withdrawals in your current account may raise an inquiry with the tax authorities. Unusual or inconsistent transaction patterns may also attract attention. Hence, maintain consistency in your current account transactions and ensure they align with your business operations.

3. Business Income

As a business owner, the money your business makes is subject to taxes. This includes profits, earnings, or any financial gains from operations. You should report the income in your tax return even if specific transactions do not prompt tax notices.

4. Lack of Proper Documentation

If you fail to maintain proper documentation for your current account transactions, it may lead to issues. Always keep records of all business transactions, such as invoices, receipts, and bank statements. This can help support the legitimacy of your financial activities.

Also Read: What are the Transaction Limits on an Online Current Account?

Types of Business Transactions That Can Lead to an IT Notice

Some current account transactions that might lead to an income tax notice are:

1. Cash Transactions above a Certain Threshold

Deposits or withdrawals of sizeable sums of cash can prompt a notice from the tax authorities. Banks need to inform the Income Tax Department of any current account deposits or withdrawals that are above the threshold of ₹50 lakhs. Hence, ensure that such current account transactions are in line with your business income and documented as required.

2. Cash Payments for Purchasing Certain Instruments

Banks must disclose transactions where customers make cash payments exceeding ₹10 lakhs. These transactions include payments for bank drafts, pay orders, banker’s cheques, or prepaid RBI instruments.

3. Payment of A Credit Card Bill in Cash and Non-Cash Methods

You can associate a credit card with your current account. If you make the payment of such a credit card bill in cash of an amount exceeding ₹1 lakh, the bank will report the same to the Income Tax Department. 

Similarly, banks must also report payments of credit card bills made through non-cash methods if the amount exceeds ₹10 lakhs.

Banks must report such transactions to ensure transparency and accountability, and to combat tax evasion and financial fraud. 

Conclusion

Whether you are opening a new current account or maintaining an existing one, you must be aware of the transactions that can attract income tax notices. By being mindful of such transactions, you can avoid unnecessary scrutiny and focus on growing your business.

IndusInd Bank offers a range of current account options designed to meet the needs of business owners. Flexibility, high transaction limits, a customised bank account number, and excellent customer support are some benefits you will enjoy with IndusInd Bank. 

Open a Current Account online with IndusInd Bank today and experience seamless banking.

Disclaimer:The information provided in this article is generic and for informational purposes only. It is not a substitute for specific advice in your circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any financial decisions based on the contents and information.