Do you also make large payments via UPI or NEFT? You could receive an Income Tax notice! Find out what the rules are..

Nowadays, we freely use UPI, NEFT, RTGS, or IMPS for everything from a small sip of tea to purchases worth lakhs of rupees. While digital payments have made life much easier, many people harbor a lingering fear: could frequent online transactions trigger an Income Tax notice?

If you have this question too, the straightforward answer is no; the Income Tax Department does not automatically issue a notice simply because you transfer or receive money digitally.

The Income Tax Department is not concerned with the 'mode' of payment (UPI, NEFT, etc.) you use; instead, it checks whether your transactions align with the income you have declared in your Income Tax Return (ITR).

When do your transactions raise a red flag?
The Income Tax Department receives information about all your major financial transactions through the SFT (Statement of Financial Transactions), AIS (Annual Information Statement), and Form 26AS. A notice is generated when the system detects a discrepancy between your declared income and your expenses.

1. According to a report, an expert cited a case where a taxpayer paid a credit card bill exceeding ₹50 lakh but had not filed an Income Tax Return (ITR) at all. The system immediately flagged this large transaction and sent a notice to the individual, asking for the source of funds.

2. If your personal savings account consistently receives large UPI payments that appear to be earnings from a business or profession, yet you have declared a very low income in your ITR, you will almost certainly come under scrutiny.

3. If you purchase property or an expensive item via NEFT or RTGS, but your declared income in the ITR does not justify such a purchase, you may be required to provide an explanation.

Which transactions are reported directly to the Income Tax Department? Banks and other financial institutions report certain 'high-value' transactions directly to the Income Tax Department under the SFT (Statement of Financial Transactions) framework.

Key examples include:

1. Credit card bills
2. Savings and current accounts
3. Shares and mutual funds
4. Property (Real Estate)

The Income Tax Department is not concerned with your use of digital payments, but rather with the use of undisclosed income. File your ITR correctly, avoid intermingling accounts, and then enjoy the benefits of Digital India without worry.

Disclaimer: This content has been sourced and edited from Dainik Jagran. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.