Beware: Excessive UPI Transactions Could Trigger Income Tax Notices

In recent years, the use of Unified Payments Interface (UPI) apps such as GooglePay, PhonePe, and Paytm has surged across India, revolutionizing the way digital payments are made. Gone are the days when one had to visit a bank to transfer money or deposit cash. Today, with a few taps on the smartphone, transactions are completed within seconds. This ease of use has made UPI apps incredibly popular for everyday financial transactions.

However, as the volume of digital transactions increases, financial experts caution that excessive use of UPI could bring individuals under the radar of the Income Tax Department. The department is closely monitoring large-scale UPI transactions, especially those involving significant deposits and withdrawals in bank accounts.

The Income Tax authorities have set limits on the amount of money that can be deposited or withdrawn without attracting their attention. For instance, if there are large amounts deposited into or withdrawn from a bank account beyond a certain threshold, it may trigger scrutiny. In particular, if the annual deposit in a savings account exceeds Rs. 10 lakh, the transaction details are flagged and reported to the Income Tax Department.

To track such transactions, the Income Tax Department is leveraging artificial intelligence and advanced data analytics. These technologies help authorities identify discrepancies in transaction patterns and ensure that taxpayers’ income declarations match their financial activity.

Under Section 285 BA of the Income Tax Act 1961, there are clear restrictions regarding the deposit of cash into bank accounts. The department will issue notices to individuals whose transactions do not align with their income tax returns, especially when the source of funds is not explained or is inconsistent with the declared income.

This means that excessive UPI transactions or unexplained large deposits could lead to tax notices, penalties, and a thorough investigation by the Income Tax Department. As a result, individuals engaging in high volumes of transactions should ensure that their financial activities are in line with their reported income to avoid unnecessary legal trouble.