When Priyanka Jhamanani (name changed) bought her friends' flight tickets for over Rs 125,000, the last thing on her mind was a notice from the income tax department.
Six months later, she was summoned by the IT department to explain the expenditure. Also, the notice asked her to meet an official and explain her source of funds.
"To catch tax evaders and prevent money laundering, the IT department has made a list of high value transaction. Notices are sent to consumers to explain these expenses, said K H Viswanathan, executive director, RSM Astute Consulting, a tax consultancy firm.
Experts explained that normally, the IT department sends notices to only those people whose yearly credit card transactions cross Rs 200,000.
But other than credit card companies, the Reserve Bank of India, banks, mutual funds and companies issuing shares and debentures need to file a report stating high-value transactions. This is done in form of an annual information report. Some even report the details every quarter.
Some of the yearly high-value transactions tracked by the IT authorities include:
1) Property purchase worth Rs 30 lakh (Rs 3 million) or more;
2) Deposits of over Rs 10 lakh (Rs 1 million)in a savings account;
3) Purchase of bonds of over Rs 5 lakh (Rs 500,000);
4) Investment in mutual funds of over Rs 2 lakh; (Rs 200,000);
5) Purchase of shares worth Rs 1 lakh (Rs 100,000) in a single company and;
6) Purchase of consumer durables like plasma television or expensive cars.
When faced with such a situation, you need to have all the documentation ready. "When IT called for an explanation, the person who has made such a transaction should carry all the documents supporting the source of funds. He also needs to carry his IT filings for the last financial year," said Kanu Doshi, a tax expert.
For instance, if the IT department calls to inquire on the purchase of a flat of over Rs 30 lakh, carry bank statement and documents that shows the loan amount.
"Make payments as much as possible through cheques or debit cards for large transactions and from an account that is your salary account. This will help to explain the source of money easily," explained Viswanathan. Further, if you have borrowed any money from a friend or relative for these purchases, take the loan in cheque. That would help clear any doubts.
To be on the safe side, mention all the high-value materials purchased while filing returns. This should include jewellery, expenditure on children's marriage, and others.