How Can Startups And Freelancers Avoid Legal Tax Blunders During Business Transactions

The only two unavoidable things in this world are Death and Taxes. This is a very famous saying and true to an extent. Many of you are going the Startups and Freelancer route, which is a good way to grow your income and career. Which is why if you’re already earning a revenue, you should at least be aware of what the transaction limits are, beyond which you are performing tax blunders and in short are definitely cooked.

You might be an unregistered Startup hustling around with MVP testing a Product Market Fit, or are just working as a freelancer or moonlighting as a side hustle. You might be planning to grow into a decent sized revenue stage and then decide to have a registered company and even register for GST and other tax related jargon, which is when you will most probably be hiring an accounting firm or a CA to take care of your tax issues. Meanwhile, have you ever thought of a simple yet a more inclusive pointer which can help you avoid Legal Tax Blunders?

You must probably be thinking if there are any resources or some kind of advisory from the Tax authorities, which might help you avoid the Tax notices to the maximum possible extent.

The Answer to the above question is Yes!

Well, if there is a list to follow, what are they? And, how can we get a summarized version of all those limits and advisories in an easy to understand language?

We have summarized a resource list that shall give you a decent idea about all those pointers, and help you refer, to avoid legal tax blunders for your current/future revenue transactions.

List of High Value Transactions & Monetary Limits

The Transactions* threshold limits above which the issue is reported to the Income Tax Department is listed below:

• Cash Deposit in Savings Bank Account: In Excess of ₹10 Lakhs
• Cash Deposit or Withdrawal from Current Account: In Excess of ₹50 Lakhs
• Cash Payment for Bank Draft/Pay Order etc.: In Excess of ₹10 Lakhs
• Sale or Purchase of An Immovable Property (ex. Land): In Excess of ₹30 Lakhs
• Cash Payment for Investment in Shares, Debentures or Bonds: In Excess of ₹10 Lakhs
• Cash Payment for Credit Card Bill: In Excess of ₹10 Lakhs
• Forex Transaction via Sale / Forex Card / International Card: In Excess of ₹10 Lakhs
• Cash Deposit in Fixed Deposit or Recurring Deposit: In Excess of ₹10 Lakhs

*All the above limits are for a Whole Financial Year.

In case you cross the threshold of any of these transactions, they are considered tax blunders irrespective of whatever income you are earning, and you will have to compulsorily file your ITR.

When you do fail to file the ITR and perform tax blunders, you can face penalties and can also be served with a Notice from the Department.

How To Respond To Income Tax Notice For High-Value Transaction?

• Step 1: Log in to your Income Tax E Filing Account with your login credentials.
• Step 2: As the home page opens you can go to Pending Actions > Compliance Portal > e-Campaign (AY 2021-22 onward).
• Step 3: Select the relevant e-campaign, of the year under which notice has been issued to you.
• Step 4: Select the information category from the mentioned categories.
• Step 5: You can select the transactions under the question.
• Step 6: You should properly analyze and confirm with your own records, if the action has rightly been taken.
• Step 7: You can submit your Response and wait for the response from the Department.

Limits For Cash Transactions Which If Undertaken Amounts To 100% Penalty

1. Accepting any ‘Loan‘, ‘Deposit‘, ‘Advance in relation to immovable property‘ in Cash in Excess of ₹20,000. (i.e. No Cash payment shall be accepted for any of the above reasons in excess of ₹20,000.) If such Acceptance takes place, then 100% penalty on the transaction shall be applicable.
2. Repayment of any ‘Loan incl. Interest ‘, ‘Deposit incl. Interest‘, ‘Advance in relation to immovable property‘ in Cash in Excess of ₹20,000. (i.e. No Cash repayment shall be done for any of the above reasons in excess of ₹20,000.) If such Repayment takes place, then 100% penalty on the transaction shall be applicable.
3. No person shall receive an amount exceeding ₹2,00,000 in Cash , from a person in a day, either for a single transaction or for multiple transactions related to one event or occasion. If such Acceptance takes place, then 100% penalty on the transaction shall be applicable.

Cash Transactions in a business shall be closely monitored, to make sure that you do not undertake any transaction which violates any of the provisions of The Income Tax Act 1961.

Keeping all of these important points in mind should help you to avoid Tax litigation and unnecessary notices.

Focus on building your startup, and avoid getting penalized due to tax blunders. Hope these above points help clear your doubts as a Desi Founder. Check out more insights about Startups here.