UPI Payments Under Scrutiny: Can Small Transactions Trigger Income Tax Notice?

While digital payments have become the norm, small transactions made on a regular basis to the same individuals is something that the Income Tax Department keeps an eye on.

The Income Tax Department keeps an eye on these transactions to check if this is income (tuition, freelancing) crosses the tax limit, then disclosing it during filing income tax returns (ITR) is necessary.

By providing access to this information, users can avoid unnecessary tax notices and penalties.

Why Does The Income Tax Department Keep Track?

For instance, if an individual sends Rs 400 to someone every day through Paytm or Google Pay, then it will become Rs 12,000 in a month. In a year, this figure goes above Rs 1 lakh. Now if this money is being given or taken in exchange for some service or work, then it can be seen as income and in such a case it is necessary to mention it in ITR.

Additionally, the Income Tax Department keeps an eye not only on big transactions but also on the pattern of transactions. In case a person is repeatedly sending or receiving a fixed amount to  different accounts or the same account, it could be a sign that some income or service-related activity is going on.

Further, the National Payments Corporation of India (NPCI) sends data from banks and UPI apps to the Income Tax Department. Therefore, it is very important to be cautious about the smallest of regular transactions and mention them in ITR filings.

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