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Often when out for a movie,etc with friends, we end up with having to pay each other Rs 200-300 (usually < 500) to settle out the differences. Most people are fine with others transferring the amount to their bank account via NEFT, but I was advised that this is not a good idea since if at any time an income tax audit takes place, I'll be charged tax on all these transfers as if they were my income.

Is this really true? Or is it harmless to transfer small amounts from random sources?

Also, my understanding is that I am risk free if I transfer TO someone elses account, risk only arises if money is transferred FROM someone elses account to mine correct?

Since these would be almost weekly and of small amounts, keeping any sort of paperwork would be rather cumbersome

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Tax is payable on one's income in India. All funds are not necessarily income as long as they can be proven not to be an income, for instance a interest free loan & return of its capital. Otherwise, yes the fund can be considered to be income.

In your case, from a practical purpose, the 200-300 Rs. transfers per month, if you get audited by IT Dept., perhaps would be discretionary considered to be non-income by the auditing office.

Again, from a practical perspective, if Indian IT dept. ever audits you, it perhaps will be for a much larger liability and 200-300 Rs. transfer per month may not matter much.

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