Income Tax notice demands details of haircut, perfumes, monthly ration cost
New Delhi, Feb 28, 2025
If expenses appear significantly higher than what can be accounted for by these records, individuals may be required to provide detailed expense breakdowns
The Indian middle class’s already complex relationship with income tax has taken a bizarre turn, with a recent viral post showcasing a notice from the Income Tax Department that has left many questioning the government’s approach. The notice, which appears to demand detailed information about a taxpayer's personal expenses, has sparked frustration online.
In what many are calling an overreach, the Income Tax Department has reportedly asked a taxpayer to provide a detailed breakup of monthly ration expenses, including the quantity and rate of each item. Even more perplexing, the notice includes a demand for information on something as trivial as the cost of haircuts.
But is this allowed?
Tax authorities analyse an individual's reported expenses against their bank records, including card transactions and cash withdrawals. This is carried out to ensure tax compliance and identify potential unreported income. This process involves comparing spending patterns with documented financial activity.
"If expenses appear significantly higher than what can be accounted for by these records, individuals may be required to provide detailed expense breakdowns. This request aims to verify the source of funds and determine if any income, particularly cash, has been earned without proper tax reporting. Discrepancies between reported spending and traceable financial activity can trigger inquiries, as they may indicate undisclosed cash income subject to taxation.," said Ritika Nayyar, Partner, Singhania & Co.
While the Income Tax Department can reasonably request information on substantial expenditures like medical bills, foreign travel, general lifestyle costs (dining, entertainment), household expenses (groceries, utilities, salaries), and investments (real estate, stocks, jewellery), digging into extremely granular details seems crossing the line into an unwarranted intrusion, experts told Business Standard.
"Inquiries about the precise quantity and cost of monthly grocery items, specific clothing purchases, spending on personal care items like perfumes or salon visits, and gifts to relatives feel excessively personal. Such scrutiny, while the department may claim is potentially within their purview, raises concerns about respecting individual privacy and maintaining a reasonable scope of investigation," said Nayyar.
[The Business Standard]
