Income Tax Notice: People often assume that the Income Tax Department only monitors transactions worth lakhs and crores. But the reality is quite different. If you only have 60 thousand rupees in your bank account and you can’t tell where that money came from, a tax notice may arrive at your home.

Under Section 102 of the Income Tax Act, 2025, the department has full authority to come into the accounts and ask questions about unaccounted money. According to CA Parag Jain, Tax Head, ‘1 Finance’, as Rs. 6 lakhs entry can be questioned, similarly Rs. The entry of 60 thousand can also be questioned. The mere fact that the amount is small or large does not determine whether the department will seek a response from you or not.

This rule can be understood by a simple example. Suppose the annual income of a working person is 12 lakh rupees. He tells the government that this is his income. But a total of 40 lakh rupees has been deposited in his bank account from different places in one year. This money could have been sent to friends, relatives or in exchange for some work over the phone.

even though UPI While Rs. Notice is not automatically issued when the amount is greater than 500 is received, and every penny is not subject to tax, but if the account shows more than the earnings, the department may ask you to account for it. The Income Tax Act does not prescribe any annual limit for UPI. It is only seen whether the account holder is able to prove the genuine reason for the receipt of money or not.

How different are the rules for phone transactions from cash deposits?

There is a big misconception in people’s minds that any UPI transaction is reported to the tax department as soon as it exceeds a certain limit. Parag Jain says there is no such rule. According to the Statement of Financial Transactions (SFT) rules, if Rs 10 lakh is deposited in a savings account or Rs 50 lakh is deposited in a current account, the bank reports the same.

These cash deposit limits do not apply to digital methods like UPI, NEFT, RTGS or IMPS. Similarly, only banks and NPCI have their own rules for remittance of Rs 1 lakh at a time through phone. It has nothing to do with income tax. But whenever the tax department examines someone’s account, they look at the entire bank statement. At that time, if more money appears in the account than the income, then every entry has to be answered.

Earnings are money received in return for some work or service.

For people who take payments over the phone every day, the tax rules are determined based on the reason for taking the money. If you take money in exchange for any work or service, it will be considered as your income. At the same time, money taken to share the bill with a friend after dinner at a hotel is not considered as earnings. The real problem arises when people start taking money into the same bank account for household expenses and their business or business.

In the year 2025, one such case came to light from Karnataka. There, GST notices were sent to over 13,000 small shopkeepers based on money received from UPI. Many shopkeepers made payments to their accounts on behalf of others, causing the transactions in their accounts to appear to be much higher than their actual shop transactions. A vegetable seller in Haveri has received a notice of Rs 29 lakh, when no GST is charged on selling vegetables.

Parag Jain advises that tuition teachers, freelancers and small shopkeepers should keep a separate bank account for work money. Also a clear bill should be given for each job, so that a clear distinction can be seen between the house money and the money earned.

Taking someone else’s money into your account and sending it forward can be a problem

Many times people get together with friends and borrow money from each other’s accounts to buy something. Many times, at the request of a relative, they take the money into their account and send it to a third person. Even if your intentions are clear, frequent payments to your account and immediate remittances can land you in big trouble. Parag Jain warned that such transactions resembled ‘money mule’ accounts. Criminals use such accounts to transfer money fraudulently, so banks and investigative agencies keep a close eye on them.

From the tax department’s point of view, you cannot protect yourself by simply sending money to someone else. The department may still ask why the money came into your account in the first place. However, such transactions alone do not constitute a crime and prosecutions are based on evidence alone. However, for their own safety, people should keep a written record of who sent the money, why it was sent, and to whom it was forwarded. Every person who transacts over the phone must keep a thorough account of the difference between the total money coming into the account and his actual earnings.