Do banks report to it authority?

This query is : Resolved

biswajit (Querist)
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25 June 2012 How do tax authorities will know if my income is taxable?
I have defined my personal case below.
I have earned around 9 Lakh Rs from Jan12 to May 12 from online freelancing.It is my full time work.I expect the same for coming months too.
I have hired 4 guys informally to work for me and pay them monthly by cash.All my incomes are international (through Paypal USD) and major expense includes Credit Card.
1)I am wondering how to show expense proof that is incurred by cash(salary ,rent etc).How will the tax authority ensure I am not over stating?
2)My Bank account shows trurnover around 15 Lakh.(7-9 L actual profit).Is this amount big enough for red flag,if I do not pay any tax return?Do banks report to IT department above some slab?
3)How does tax authority in India keep tab of people who do not pay tax return? How big the earning/turnover should be so that it comes under "must pay " section?
4)I want to pay minimum to zero tax in long run exploting as many as methods possible.Only problem is incomes come through bank account being international.Any suggestion on this.(Buying agricultural land,letting the revenu come through multiple persons name etc)

Thanks for your time.

PS:I passed out from college 1.5 years back and have not filed IT return before.I know I should approach a professional.But,do not know whom/how to approach in Bangalore/Chennai.

gbalakrishnan

gbalakrishnan (Expert)
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25 June 2012 U/S 69 OF IT ACT u can have undocumented business income and so too undocumented expenditure that is cash as any business can be done if it is not against public policy, that way paanwalas run business and one need not necessarily show all incomes by cheque/bank drafts. if insisted a lot of trades will come to stand still.
if your income is not by cheques alone and your business income if not duly accounted it is not illegal and expenditures need not necessarily be by cheques and tax officer cannot insist but he has to accept your income and expenses statement as long as you have not created any loop holes.
true tax officials will harass but you need not unnecessarily give in as there is legal protection. yes have a CA to help your business that CA can help sensibly per tax laws in place but these rules change every year in finance bills like chemeleons!