Cash deposit, UPI, RTGS or NEFT: Which bank transactions can trigger an Income Tax notice?

Before you deposit a large chunk of cash or transfer money online, it’s worth knowing that banks report certain high-value transactions to the Income Tax Department under the Statement of Financial Transactions (SFT).

Hence, for taxpayers, it is important to know which transactions can trigger scrutiny from the income tax department and stay compliant.

Cash deposits vs online transfers: Which can trigger an I-T notice?

Every high-value transaction you make could leave a trail with the Income Tax Department. Whether you deposit cash or transfer money online, certain transactions above the specified limits are reported under the SFT.

“Cash deposits are generally more likely to attract tax scrutiny than routine online transfers because they are harder to explain from a tax trail perspective. Digital transfers usually leave a clearer record through bank statements, UPI, or payment references, whereas large cash deposits can trigger questions about the source of funds,” said CA Chandni Anandan, Tax Expert at ClearTax.  

That said, online transfers can also attract queries if they are unusually large, frequent, or inconsistent with the taxpayer’s reported income.

Current reporting thresholds under SFT

Under the SFT framework, banks and other specified institutions report high-value transactions above the following prescribed limits, according to the Income Tax Department. 

For savings accounts, cash deposits aggregating to Rs 10 lakh or more in a financial year are reportable, while cash deposits or withdrawals in current accounts are generally reportable at Rs 50 lakh or more in a financial year. 

Fixed deposit transactions of Rs 10 lakh or more may also be reported, and certain other high-value transactions can trigger reporting depending on the category. 

Reportable if cash payments for bank drafts, pay orders, banker’s cheques, or RBI-issued prepaid instruments total Rs 10 lakh or more in a financial year.

If cash receipts for the sale of goods or services exceed Rs 2 lakh in a single transaction.

If aggregate cash is Rs. 1 lakh or more for making payment for one or more credit cards.

If the total amount is Rs. 10 lakh or more for making payment for one or more credit cards using any mode other than cash.

If investments in bonds or debentures (excluding renewals) total Rs 10 lakh or more in a financial year.

If share purchases, including share application money, total Rs 10 lakh or more in a financial year.

If the total amount spent on buyback of shares from any individual other than those purchased on the open market during a fiscal year is Rs. 10 lakhs or more. 

If the total amount received from any individual for purchasing units of one or more mutual fund schemes during a fiscal year is at least Rs. 10 lakhs, excluding the amount received as a result of a transfer from one scheme to another.

If the purchase or sale of immovable property is valued at Rs 30 lakh or more by the Stamp Valuation Authority.

If the total amount received from any individual for the selling of foreign currency, including credit to a foreign exchange card, is Rs. 10 lakhs or more within a fiscal year. 

If the total amount spent in foreign currency throughout a fiscal year via a debit card, credit card, traveller’s cheque, draft, or any other method is at least Rs. 10 lakhs.

These thresholds are monitored by the reporting entity, not the taxpayer alone, says CA Chandni Anandan. 

How do these transactions appear in AIS and other records?

High-value cash deposits, withdrawals, interest credits, and other reportable banking transactions can appear in the Annual Information Statement (AIS) and related tax records. 

Once reported by the bank or institution, the data may be visible to the tax department and can be matched against the income shown in the return. CA Chandni Anandan says if the source of funds or the nature of the transfer does not align with the income disclosed in the ITR, it may lead to a notice or a request for clarification.

Records taxpayers should maintain

Taxpayers should keep bank statements, cash source notes, invoices, receipts, loan agreements, gift deeds, sale agreements, and any other proof explaining the origin of the money. 

If the cash came from business receipts, they should maintain books of account, bills, and supporting vouchers. 

For online transfers, taxpayers should preserve payment references, client communications, invoices, and contracts so the transaction can be linked to a lawful source. 

The key is to be able to clearly explain the money trail if the department seeks clarification or explanation.

Common mistakes that lead to notices

A common mistake is assuming that money credited to a bank account is automatically “not taxable” unless it came as salary. 

Another error is depositing large cash amounts without keeping supporting proof of source. 

Taxpayers also often ignore AIS entries, fail to match them with their return, or classify business receipts as personal transfers. 

In many cases, notices arise not because the transaction itself is illegal, but because the taxpayer cannot substantiate it properly when asked.

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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