In a recent issue of Moneylife a reader, who is getting a salary, has posted a query saying that he purchased a car of Rs 11 lakh, paying cash from his savings and found that the amount was included in his form 26as and he was expected to pay tax on it . Usually for most salaried persons, the form 26as only includes the tax deducted by their employer and interest income from banks and other sources. The person posting the query claimed that he had paid the cash from his savings from salary

This incident clearly indicates that the income tax department is closely monitoring the sales of cars, especially expensive cars costing more than Rs 5 lakh. Then without sending a notice to the car buyer they are automatically adding the amount to the income of the car buyer and asking the person to pay taxes while filing income tax returns.

So it is highly dangerous to purchase a car paying cash, it is better to pay by cheque and use cash only for incidental expenses related to the car like registration, accessories and similar low value purchases.