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What To Do In An Income Tax Raid? Research Team | Posted On Thursday, March 28,2019, 04:53 PM

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What To Do In An Income Tax Raid?



It’s the season of tax raids. In a predawn swoop on a Thursday, Income Tax officials supported by CRPF personnel, conducted raids at Karnataka minor irrigation minister CS Puttaraju and his nephew’s residence. Three teams of CRPF personnel raided the residence of Puttaraju in Mandya and his nephew’s residence at Mysuru.

After demonetization and GST, there’s a singular focus on going after black money. As Income tax officials raid residences in search of black money, an important question remains to be answered. What to do in an income tax raid?

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What To Do In An Income Tax Raid?

What is Black Money?

Black money is illegal income on which taxes are not paid. Black money is illegally hoarded and hidden from tax authorities. If you keep undeclared money or jewellery or any kind of wealth, its black money. The tax department is very interested in black money and conducts raids to catch it. If you have black money or hidden someone’s black money, chances of an income tax raid are high.

When does an income tax raid happen?

Income tax raid is also called Search and Seizure. It is the income tax department’s weapon against black money. There’s more bad news for black money hoarders. Income Tax Raids are backed by the Constitution of India.

If the Intelligence Wing of the Income Tax Department gets credible information on tax evasion, it conducts an income tax raid. Information could be from Government Departments and assessment records of tax payers.

If you indulge in disproportionate spending vis-à-vis income, (this is lavish spending not in proportion to income you earn), expect an Income Tax Raid.  The other common reasons of an IT raid are illegal investments in real estate (Benami Properties), manipulation of books of accounts and vouchers and unexplained cash credits/share transactions.

Evidence of duplicate sets of books of accounts, people in possession of huge amounts of cash, gold jewelry on arrival at Domestic and International airports, possessions of lots of money in accounts on a person earning low income, undisclosed income at banks and business premises, all of this leads to an income tax raid.

Let’s say a taxpayer doesn’t respond to income tax notices and summons. This person has in his possession, disproportionate amounts of cash, valuables far in excess of income or undisclosed property, then the IT Department conducts tax raids.

SEE ALSO: Income Tax Raid

Who conducts an IT Raid?

These people can conduct an IT Raid:

  • Director General of Income Tax.
  • Director of Income Tax
  • Chief Commissioner of Income Tax
  • Any such Additional Director, Additional Commissioner, Joint Director, Joint Commissioner, Assistant Director, Assistant Commissioner, Deputy Director, Deputy Commissioner of Income Tax as empowered by the board.

The Income Tax Board can authorize an officer, not below the rank of income tax officer to conduct an income tax raid.

What Tax Authorities do in an Income Tax Raid?

The authorized income tax officer enjoys these powers during an income tax raid.

  • He can enter and search any place or building if he has reason to suspect that books of accounts, money, bullion, jewelry or valuables are hidden there.
  • He can break open locks of doors, almirahs, lockers, safes and exercise powers under clause 1 if keys are not available.
  • He can seize money, gold jewelry, bullion, books of accounts or any documents during the course of the raid.
  • Place identification marks on books of accounts or other documents for extraction or make copies.
  • Make a note/inventory of money, jewelry, bullion and other valuables.
  • Personal search of a person suspected to have secretly stored some items.

Which Assets can be Seized in Income Tax Raid?

The income tax officials can seize undeclared cash, jewelry, diaries, challans, books of accounts, computer chips and data storage devices like pen drives and optical drives. If the tax department suspects undisclosed property, it seizes property documents like conveyance deeds.

The income tax department searches people, books of accounts or documents which are not likely to be produced after an income tax notice. Tax officials are interested in people who are likely to be in possession of undisclosed income and property.

Which assets cannot be seized in Income Tax Raid?

Stock-in-trade of a business, assets declared in books of accounts, cash/assets declared or disclosed before IT Department and Wealth Tax Department.

Assets declared in the book of accounts of the business, cash from duly explained sources, jewelry declared in wealth tax return, gold up to 500 grams for a married woman and 250 grams for an unmarried woman. It’s 100 grams for a male member.

What are the rights of a person during a tax raid?

  • All personal searches of ladies must be done by a lady. This must be done within levels of decency.
  • There must be a minimum of two respectable independent residents of the neighborhood, serving as witnesses.
  • A doctor/medical practitioner must be called in case of a medical emergency.
  • Children must be allowed to go to school, without checking bags and tiffin boxes.
  • Meals of the people being searched (subject to income tax raid), must be had at normal times.
  • If a lady is occupying the apartment being searched and she doesn’t appear in public due to customs/practices/traditions, she can withdraw before the search party enters the premises.
  • The person whose property is being raided has the right to ask for the copy of the panchanama with annexures.
  • You can ask for a copy of any statement used by the tax department against you.
  • You can inspect the seized books of accounts. You can also take extracts in the presence of income tax officials.

What are your duties during income tax raid?

  • You must allow free and unhindered access to the premises.
  • Identify where the books of accounts and documents are kept, and give income tax officials keys of receptacles.
  • You must identify and explain ownership of books of accounts, assets and documents.
  • Identify all individuals on the premises and their relationship with you. This prevents impersonation. Impersonation or cheating in any form is a punishable offence under Section 416 of the Indian Penal Code.  
  • Don’t allow any unauthorized person, access to the premises.
  • Don’t remove any articles/items from place without the knowledge of the authorized tax officer.
  • Destruction of documents to prevent them being used as evidence against you in court is a crime. This is punishable with imprisonment, fine or both. This is in accordance with Section 204 of the Indian Penal Code.
  • You must answer all questions truthfully as you are under oath. Do not prompt a third party when his statement is being recorded by the authorized tax officer.
  • If you give false evidence, you are liable to be punished under the Section 191 of the Indian Penal Code.
  • You must affix the signature on recorded statements.
  • Ensure peace is maintained during the search.
  • Ensure co-operation even after the search is finished.

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