As per the Central Board of Direct Taxes (CBDT) the payments made in cash towards credit card dues of an amount of Rs 1 lakh or more must be reported.
If anyone pays Rs. 10 lakh or more to settle credit card dues in a financial year via mode, these transactions too need to be reported to the income tax department.
Monitoring of High-Value Cash Transactions
The Income Tax Department has mandated that financial institutions and other entities report high-value cash transactions under the Income Tax Act, 1961. These transactions are flagged through the Statement of Financial Transactions (SFT). Banks and credit card companies are required to report if the cash payment for a credit card bill exceeds Rs. 1 lakh in a financial year.
Tax Implications
Source of Income Scrutiny
If an individual pays their credit card bill in cash for a significant amount, the Income Tax Department may inquire about the source of the cash.
Taxpayers must ensure that they can substantiate the cash payment with documented evidence, such as income records, withdrawals from bank accounts, or other legitimate sources.
Unexplained or disproportionate cash payments may be taxed as unexplained income under Section 69A of the Income Tax Act, 1961.
Impact on Tax Returns
High cash payments can attract scrutiny during tax return filing or assessments.
Any mismatch between the declared income and the cash payment capacity could raise red flags, potentially triggering an audit or notice from the tax authorities.
Limitations on Cash Transactions
Under Section 269ST of the Income Tax Act, a person cannot receive Rs. 2 lakh or more in cash from a single person in a single transaction or across multiple transactions for the same event.
While this does not directly impact credit card bill payments made to a bank, individuals using cash for related activities (e.g., depositing cash into a bank account) must adhere to these limits.
Penalties for Non-Compliance
Unexplained Income Taxation
If the source of cash payment is deemed unexplained, the tax authorities may levy a tax of up to 60% on the unexplained amount.
Penalties for Excess Cash Transactions
If any provision under Section 269ST is violated, the recipient of the cash (e.g., a merchant or business accepting cash payments above Rs. 2 lakh) is liable to a penalty equal to the amount of the transaction.
Audit Triggers
Repeated instances of high-value cash transactions may increase the likelihood of the individual’s accounts being subjected to tax audits.
