Many people believe that as long as their total cash deposits stay below Rs 10 lakh in a financial year, they don’t have to worry about the tax notice from the Income Tax Department. But that’s only part of the story. The Rs 10 lakh limit is mainly a reporting threshold for banks, not a guarantee that your deposits will escape scrutiny.
If the money you deposit doesn’t match your declared income or raises red flags in the tax department’s systems, you could still receive an income tax notice even if your cash deposits are much lower.
Here’s why taxpayers should look beyond the Rs 10 lakh myth and understand the situations in which lower cash deposits can also attract the Income Tax Department’s attention.
Below Rs 10 lakh? Your cash deposits can still be questioned
The Rs 10 lakh figure under Rule 114E is only the threshold at which a bank must formally report the deposit; it is not the only thing the department sees.
According to CA Chandni Anandan, Tax Expert at ClearTax, notices below that level happen for a few reasons: the Rs 10 lakh limit is an aggregate across all your accounts, so several smaller deposits can still cross it; other reporting triggers sit at lower values, such as cash above Rs 2 lakh for a sale, or the PAN requirement on single-day deposits above Rs 50,000; and the department’s systems flag any deposit that looks disproportionate to your declared income, regardless of size.
In short, it is the mismatch with your reported income, not the Rs 10 lakh mark alone, that invites a query. If your return captures all your income with documentary backing, a below-threshold deposit carries little risk.
Which tax sections apply to cash deposit notices?
The charging provisions are Section 68 (unexplained cash credits), Section 69 (unexplained investments) and Section 69A (unexplained money), used where the source of a deposit cannot be satisfactorily explained, according to Anandan.
Once income is treated as unexplained under these sections, it is taxed at the punitive flat rate under Section 115BBE, which works out to roughly 78% after surcharge and cess, with no deductions or set-offs allowed.
The notice itself typically comes under Section 142(1) (inquiry before assessment), Section 143(2) (scrutiny) or Section 148 (income escaping assessment), and the department may also seek information under Section 133(6), Anandan further added.
Popular high-value transactions that can trigger a notice
| Transaction | Threshold (per financial year) | Reported by |
| Cash deposits in savings accounts | Rs 10 lakh or more | Banks, co-operative banks, post office |
| Cash deposits or withdrawals in current accounts | Rs 50 lakh or more | Banks, co-operative banks |
| Fixed (time) deposits | Rs 10 lakh or more | Banks, post office, NBFCs, Nidhi companies |
| Credit card bill payments | Rs 1 lakh in cash, or Rs 10 lakh by any mode | Card-issuing banks or institutions |
| Purchase or sale of immovable property | Rs 30 lakh or more | Registrar or Sub-Registrar |
| Purchase of shares, mutual funds, bonds or debentures | Rs 10 lakh or more | Company, mutual fund or issuer |
| Cash received for sale of goods or services | Above Rs 2 lakh | Sellers liable to audit under Section 44AB |
| Sale of foreign currency or forex card spends | Rs 10 lakh or more | Authorised foreign-exchange dealers |
Does the tax department rely only on SFT data?
SFT is just one input. The department draws on a much wider net, most of which converges into your Annual Information Statement (AIS) and Form 26AS: TDS and TCS records, GST data, property registrations, foreign remittance filings, and information exchanged with other countries under the automatic exchange framework.
“It also runs data-analytics and risk-profiling systems that cross-check declared income against spending and investment patterns, and a non-filers monitoring mechanism for those who transact but don’t file. So a deposit can surface through several channels even if no single SFT threshold is breached,” commented Anandan.
How to respond to a cash deposit tax notice?
The first step is to establish that the income behind the deposit was reported in your return and taxed, and to set out the source of the funds with reliable supporting documents. A clear, documented reply usually closes the matter at the first stage.
Keep whatever proves the source of the money: bank statements showing a clean trail, salary slips, the sale deed for a property or capital-asset sale, gift deeds for gifts received, loan agreements where relevant, and business or professional receipts. Pairing these with your ITR, Form 26AS and AIS makes the deposit fully traceable and the response straightforward.
Disclaimer: This article is for informational purposes only and does not constitute professional tax advice. Tax laws and regimes are subject to frequent changes by the government. Readers should verify details with official Income Tax Department notifications or consult a Chartered Accountant before making any financial decisions.
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