Your savings account meets your monthly needs: salary, bills, EMIs, or sometimes transferring or receiving money. All this seems normal, but now the Income Tax Department is keeping a close eye on even these everyday transactions.
Yes, now the transactions of not just big businessmen or wealthy individuals, but even ordinary bank account holders, are subject to the Income Tax Department’s Data Monitoring System.
The I-T Department’s Data Monitoring System for the Statement of Financial Transaction (SFT) is a reporting mechanism used to track high-value financial transactions and curb tax evasion.
If you’ve made unusual cash deposits or frequent cash transactions in a particular year — your account could come under scrutiny.
Why the increased surveillance?
Over the past few years, the Income Tax Department has significantly strengthened its digital data analytics system. Banks, mutual fund houses, post offices, and registry departments are now required to report “Specified Financial Transactions (SFT)” annually.
This report includes details of all accounts that have significant or unusual activity, to help detect tax evasion or “anonymous” transactions.
Now let’s talk about 10 common transactions you should keep an eye on.
Cash deposits of Rs 10 lakh or more in a year
If you deposited Rs 10 lakh or more in cash into one of your savings accounts during a financial year (April 1 to March 31), the bank is required to report this information to the Income Tax Department. Whether this amount is deposited all at once or on different dates, it falls under the scope of scrutiny.
For example, if a person has Rs 12 lakh in cash deposited into their account and this income is not shown in their Income Tax Return (ITR), the department may issue a notice.
Large credit card bill payments
If you’re paying your credit card bills in cash or through large bank transactions, this also falls under the reportable category. The department looks at whether your declared income is in proportion to your expenses.
Suppose your annual income is Rs 6 lakh, but you’re paying credit card bills of more than Rs 1 lakh every month, the department may assume that your actual income is higher than reported.
Frequent large cash withdrawals or deposits
Many people frequently withdraw or deposit large sums of money from the bank, especially for business or wedding occasions. Although this is legal, if cash transactions are made repeatedly and without a clear reason, the bank may report it as “suspicious activity.”
In such cases, income tax officials may inquire about the source — “Where did the money come from and where did it go?”
Large property purchase or sale transactions
If you have made a property purchase or sale transaction of Rs 30 lakh or more, the department automatically receives information about it. If your bank account has suddenly become active and a large amount of money has been transferred into or out of it, officials may investigate whether the amount is related to a property transaction.
Recently, the department has detected several cases where cash property transactions were not reported to the tax authorities, according to various reports.
Foreign-related transactions or foreign exchange expenditures
If you’ve spent more than Rs 10 lakh on foreign travel, foreign education, or forex cards, this also falls within the department’s reporting limit. The purpose is to determine whether the source of the foreign exchange is legitimate.
Sudden large activity in a dormant account
Sometimes, people don’t use an old account, but suddenly a large amount is deposited or transferred into it. In such a situation, the bank may consider this transaction “suspicious” and report it to the department, especially if there has been no regular activity in the account before.
Discrepancies in interest or dividend information
If interest or dividends from mutual funds are credited to your bank account, but you haven’t reported them in your ITR, this also creates inconsistencies in the IT department’s records. The department now matches this data through an automatic matching system, that is, comparing both your bank entries and returns.
Multiple bank accounts and unreported interest income
Many people maintain three or four bank accounts for convenience: one for salary, one for household expenses, and one for investments. However, many times, they don’t include the interest or transactions from these accounts in their ITR. Now, this data reaches the department through PAN and Aadhaar linking.
Money from undeclared or unexplained sources
If a large sum of money has been deposited into your account and its source is unclear, such as a “borrowed from a friend,” “household savings,” or a “gift”—it raises questions for the tax department. In such cases, if there are no documents or evidence, it may be considered unaccounted income.
Transacting for someone else
If a third party used your account, such as someone making payments from your account or receiving money in someone else’s name, this also falls into the “risk category.” The department may consider this to be money laundering or a benami transaction.
How is this all detected?
Almost all banks and financial institutions are now required to submit an SFT (Specified Financial Transaction) report to the Income Tax Department every year.
This report contains information on cash transactions above Rs 10 lakh, major investments, real estate deals, and credit card expenses.
The Income Tax Department links this data to PAN numbers and Aadhaar numbers, allowing it to identify who is responsible.
