Large UPI, NEFT transfers won't trigger tax notice automatically

Take a taxpayer who reports modest business income but whose account regularly receives large credits. The department can seek an explanation if those credits are not accounted for as business receipts, loans, gifts, or investment proceeds. Similarly, a large investment or property purchase via bank transfer requires the source of funds to be established. The payment method – UPI, NEFT, RTGS, or IMPS – does not change the underlying tax treatment.

The Annual Information Statement (AIS) gives taxpayers a consolidated view of information available with the department, including TDS/TCS, SFT reports, and tax payments. Form 26AS, from assessment year 2023-24 onward, primarily shows TDS/TCS data. Before filing a return, taxpayers should compare their AIS, Form 26AS, bank statements, and investment records, paying attention to income on which TDS has been reported, capital gains, interest, and SFT-reported transactions.

There is no penalty or notice simply for using a digital payment mode. What creates problems is an unexplained transaction or a mismatch between financial activity and what is disclosed in the return. Maintaining a clear trail of the source of funds and reconciling the return with AIS and other records helps avoid complications, as Kirti Jha of Mint reported.