You're confusing the tax man with the credit card man. The tax man does not care about credit card rotation, business spends on your credit card etc.
Also the tax man will not care about 10L spends when your income is 8L. They have more important things to do in life. And so should you. It would be incredibly unlikely for someone @ 8L salary to be pulled up for an audit. Other than that - you're free to live outside your income on loans and all kinds of debt in the world that you can get.
It's called "Income tax" for a reason. It's your sources of INCOME that they are looking to tax. Excessive credit card spends, home loans, car loans, personal loans, pay day loans etc. are not sources of income.
You're right, it is not a source of income but what they care about is about payments toward credit cards. I can spend 20L and not make a payment, nothing gets reported in AIS. I can spend 10L and pay the 10L and it will show up in AIS.
While it is not an indicator you'll get an audit or notice, it is being reported now and it's data IT is using to their advantage.
Is there bigger whales or businesses to go after? Yes. But that doesn't mean you will get away without a notice/audit.
Does anyone know the thresholds or metrics for a tax notice? No.
How do they find and pick who to send a notice or audit first? Also nobody seems to know.
But they have the data and it's easy to find when the income can't justify the payments made, so there's a good reason for them to send you a notice and audit that person. With the current status overall, I'd bet they're close or already have useful insights on the taxpayers already. Now with AADHAAR-PAN linking it's like a nail in the coffin for many people.
It wouldn't come as a surprise if as soon as you file your taxes you get a notice to justify the payments towards a credit card if they can't be justified by your income.
Most notices and audits seemed to happen 3-4 years after the financial year in question and some even 7 years back earlier on. Doing some Google-Fu will bring some forums and posts about people who have gotten a notice. Sadly in all of them there's no updates on the outcome or process, just advice on getting a CA.
So while it is unlikely to get a tax notice in many cases there's a chance that it might happen. And this risk has increased a LOT.
If you can justify your payments with loan money or rotating money there shouldn't be any repercussions or penalties but it will be troublesome to deal with. Those abusing it to mint points or get a lot of cashback might be considered as a profession or business, they might face penalties.
Each person will have to evaluate their case, it's impossible to measure the chances of getting an audit/notice as of now. But IT has the data and if you think you might come under their radar better be aware and prepared in case of an audit, they can be painful and time consuming. You'll be a suspect of tax avoidance and there will be questioning and scrutinity of all your financial transactions.
It might feel unfair while there's whales like businesses, politicians and others blatantly avoiding taxes or even committing tax fraud. But it is the current state of affairs, we all would love to get rid of corruption and to prioritize these people but it is beyond our control.
