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Suppose my friend has to transfer to someone a big amount using debit card. Since he doesn't have a debit card, he transferred the same amount to my bank account via cash and asked me to make transaction using my debit card.

I made the payment for him using my debit card once the amount got credited to my bank account.

Since that amount is shown as credit in my bank statement, do I have to pay tax for it? Also, Are there chances that it can cause tax problem in future?

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    No good can come of this. The friend should find a legitimate way to transfer the funds on his own. – JoeTaxpayer Jun 10 '14 at 18:18
  • @JoeTaxpayer: Use of the past tense in the question indicates it's too late. – BrenBarn Jun 10 '14 at 18:52
  • @BrenBarn Oops! I used the incorrect tense. I have to make the transaction in upcoming 1-2 days. – user14719 Jun 10 '14 at 18:55
  • Why can your friend transfer money into your account, but not into the account of the ultimate recipient? – DJohnM Jun 11 '14 at 0:41
  • @User58220: according to the question: because the ultimate recipient only accepts card payments. But yes, allowing third parties to channel money through your account reeks of money laundering and should be avoided unless you trust the person very much. – Michael Borgwardt Jun 11 '14 at 11:01
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It is generally best to avoid such situations.

Any credits to your accounts need to be explained to tax authorities whenever they enquire.

This cannot be treated as income as you did not work in exchange for the amount.

It can be treated by tax authorities as GIFT. Gift upto certain amount is tax free. Beyond the amount its taxable. Gifts from close relatives has not amount limit and is tax free.

Whenever the scrutiny happens, if you can convince the tax authorities that the action was more for convenience, it maybe fine.

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In THEORY, you don't have to pay income tax in such a situation.

In actual fact, the transaction looks suspicious because the money went into your account. Presumably, the money should have gone OUT of your account in equal amount.

Having allowed all this to happen, what you need to do is to DOCUMENT this activity ASAP.

The first thing to do is to retain the paperwork showing the sending of the funds to the third party. The second thing to do is to ask your friend for a letter dated TODAY (don't use an earlier date) as to why the money was delivered into your account, and corroborating the fact that it was sent to the third party.

Then if the IRS comes calling, you will have documentation to prove your point and protect yourself.

protected by Ganesh Sittampalam Nov 18 '17 at 15:25

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