Large cash deposits: What triggers a tax notice, and how to stay safe

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Banks have to report the high-value cash activity to the Income Tax Department. Cash deposits of Rs 10 lakh or more in a financial year across your savings accounts, or Rs 50 lakh or more across current accounts, are subjects of mandatory reporting rules. Even smaller deposits can be scrutinized if they are unusual compared to one's regular banking pattern. This does not mean a notice is guaranteed, but it does mean the tax system will flag the transaction for review.

How your bank reports these transactions

Banks report all this information as an SFT, or Statement of Financial Transactions, to the tax authorities. It gets reported automatically and is quite routine, just like TDS reporting. Once your deposit crosses the defined limits, the information shows up in your Annual Information Statement on the income tax portal. If your declared income and your banking activity do not match, that is when a notice may follow.

Why documenting your source of cash is important

The safest way to avoid questions is to ensure you can clearly show where the money came from. Whether it is savings kept at home, sale of old jewellery, agricultural income, rent collected in cash or proceeds from selling an asset, maintaining proof protects you. If you can't support the source with even basic documentation, the tax department may treat the cash as unexplained money, which attracts steep penalties. Keeping simple records, receipts or declarations solves most of these issues.

When depositing in smaller chunks helps and when it doesn't

Breaking down large sums into smaller deposits only works if, overall, the sum genuinely reflects your income history. Banks still report the total value across the year, so breaking it up does not hide it. What it can do is reduce friction on the day of the deposit, especially if your branch otherwise asks questions about a single unusually large deposit. But the overall picture still shows up in your tax profile, so it's more about transparency than the size of each deposit.

Why consistency with your tax return matters

If the cash deposits are consistent with the nature of income you show every year, you're normally safe. For instance, a small-business owner or a farmer depositing cash is consistent with the nature of their business. However, if a salaried person who has a fixed salary suddenly makes a cash deposit of Rs 5 lakh or Rs 8 lakh without explanation, then such incongruities stand out. It is that gap between your normal profile and your banking activity that does it. Ensuring that your tax return and your bank trail tell the same story is a strong safeguard.

How to stay compliant without stress

Collect your supporting documents and context of how this fits into your overall financial picture before you make a large cash deposit. Deposit it calmly if it's from a legitimate source, and have the paperwork handy just in case. If it is a one-time thing, like a sale of items within the family or an inheritance, you may want to contact your bank or keep a simple signed note from the person giving you the money. These are small steps that create a clean record and prevent confusion later.

The bottom line

Depositing large amounts in cash is not illegal, but it does raise a number of questions when the source is not apparent. Being prepared with your documentation, consistency with your tax return, and clear paper trail keep you safe. Just a little forethought before you go into the bank will help you avoid unnecessary headaches later.