Tax Notice: UPI users beware—you could receive an Income Tax notice.

Tax Notice: Do you frequently make UPI transactions? If so, this news is for you, as the government and the Income Tax Department are keeping a close watch on your activity. You could receive a notice from them at any time.

Income Tax Notice: Nowadays, most people rely heavily on UPI payments, net banking, and other online transactions. Digital payments are used for everything from daily chores—like buying vegetables or milk—to making major purchases. This raises a common question: Does the Income Tax Department monitor every single digital transaction? Can frequent online transactions lead to a tax notice? Let’s find out.

Is every digital transaction monitored?

First, it is important to understand that the Income Tax Department does not track every minor transaction. Banks and other financial institutions only report details of large transactions to the government through the Statement of Financial Transactions (SFT).

The following transactions fall under the Income Tax Department's purview:

Cash deposits of ₹10 lakh or more in a savings account during a financial year are reported to the tax department.
Cash deposits or withdrawals of ₹50 lakh or more in a current account are reported.
If an individual pays a credit card bill exceeding ₹1 lakh in cash, or makes a payment of ₹10 lakh or more via any mode, the department is informed.
Investments of ₹10 lakh or more in fixed deposits, shares, mutual funds, bonds, or debentures, as well as the purchase or sale of property worth more than ₹30 lakh, are reported.

What happens if you receive a notice?

If you are unable to provide a valid source for a large sum of money, it may be treated as undisclosed income. In such cases, one may be liable to pay additional tax and penalties. In serious instances, the combined tax and penalty liability could reach up to approximately 78 percent. The department may also reopen past tax records in certain cases.

How to avoid such notices

There are ways to avoid receiving such notices from the Income Tax Department: maintain separate bank accounts for personal and business transactions, and keep comprehensive records of income if you are a freelancer or a small business owner. Preserve documentation for any large sums of money or gifts received from relatives. Additionally, make sure to check your AIS and Form 26AS before filing your ITR; if you spot any incorrect or unfamiliar transactions, report them using the feedback option available on the income tax portal.