Under tax radar due to high income and low withdrawals? Here’s how you can avoid tax investigation

If your income is high but withdrawals and transactions are very low, then the Income Tax Department may have its eyes on you. Income Tax officials are paying attention to cases where there is a big difference between declared income and spending pattern. If a person’s declared income is high, but cash withdrawals or digital spending is low, then it can be considered a sign of undeclared income and investigation may start.

According to CA (Dr.) Suresh Surana, high-income individuals need to ensure that their withdrawals and digital transactions align with their declared income to avoid scrutiny from tax officials. “A significant mismatch between the income report in the tax returns by the taxpayers and their spending patterns, such as low cash withdrawals or minimal digital transactions despite high earnings, may raise concerns about undeclared income, leading to potential scrutiny or tax investigations.”

Also read: Tax officials given more power than ever to raid, seize digital assets, attach properties – Details inside

What to do to avoid tax investigation?

If you want to avoid coming under investigation, keep the following things in mind:

1. Declare all income sources

File all income like salary, rental income, capital gains, business income, interest and dividends correctly in your Income Tax Return (ITR). If the income is under-reported or misreported, it can raise suspicion.

2. Maintain proper financial records

Keep a complete record of cash withdrawals from the bank, UPI payments, credit card expenses, and other financial transactions. If the Income Tax Department makes any inquiries, it is important to have the right documentation, says Surana.

3. Avoid excessive cash transactions

Surana suggests taxpayers to keep banking and digital transactions in line with their actual income and lifestyle. If there are sudden large cash deposits or an unexplained increase in bank balance, it may raise suspicion.

Possible consequences of difference in declared income and transactions:

If a person’s reported income and his banking or digital transactions show a big difference, it can have serious consequences:

1. Tax notices and scrutiny

The Income Tax Department can send notices under sections 131, 133(6), 133A, 132 and 143(2) and initiate a thorough investigation.

2. Re-assessment and investigation

If any irregularities are found,

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