Here's why cash deposits over Rs 20,000 for loan repayment may get flagged by tax officials

Tax treatment of loan given to a cousin

Not all cash deposits in your bank account may be taxable but can still raise red flags with the income-tax department if not explained properly. A common case is when relatives deposit cash for EMI repayments. Is this income in your hands? Do you need to file an income-tax return (ITR) if your tax liability is zero? Let’s break it down in today's Ask Wallet Wise query.

Moneycontrol’s Ask Wallet Wise initiative offers expert advice on matters of personal finance and money. You can email your queries to askwalletwise@nw18.com, and we will try and get a top financial expert to address your queries.

I work as a software developer in a private company. I have taken a couple of loans for one of my relatives, who deposits the EMI amount in cash every month into my account. Though my taxable salary is slightly above the basic exemption limit, due to the Section 87A tax rebate no tax is deducted from my salary. I have not yet filed my ITR. Is the cash deposited in my account for repaying the EMI taxable in my hands and should I file my ITR?

Expert Advice: The cash deposited by your relative for EMI payments in your bank account is treated as repayment of the loan you gave to him. It is not taxable in your hands.

It is presumed that after the loan amount was credited to your bank account, you withdrew the money and handed it over to your relative. This amounts to your relative accepting a loan in cash. Accepting a cash loan beyond Rs 20,000 is prohibited under Section 269SS of the Income Tax Act, and a penalty equal to the loan amount can be levied on your relative.

Similarly, the cash deposited by your relative in your account as repayment of the loan is also prohibited under Section 269T. A penalty equal to the amount repaid in cash can be levied on your relative if the tax department notices the transaction.

According to Section 139 of the I-T act, you are required to file your ITR if your gross taxable income before deductions exceeds the basic exemption limit. Under the old-tax regime, the exemption limit is Rs 2.5 lakh for individuals below 60 years, Rs 3 lakh for senior citizens (60–80 years), and Rs 5 lakh for super senior citizens (above 80 years). Under the new-tax regime, the exemption limit is Rs 3 lakh for all taxpayers.

Please note: Filing an ITR is not decided by your tax liability. Even though you do not need to pay tax due to the rebate under Section 87A, you are still required to file your returns.

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