income tax
Copy Page
Published on 18 August 2025
Understanding Income Tax Notices for Cash Deposits and Compliance Guidelines
Why You May Receive an Income Tax Notice for Cash Deposits — Key Facts Every Taxpayer Should Know
In recent years, the Income Tax Department has significantly strengthened its monitoring system. Using advanced data analytics and information shared by banks, registrars, and other financial institutions, the department now keeps a close watch on large cash deposits and high-value transactions.
Why Are These Notices Issued?
- To detect gaps in reporting: Notices are triggered when individuals have substantial cash flows, but their ITR shows little or no income.
- To ensure transparency: Information collected by banks, property registrars, mutual funds, and brokers is cross-verified with your Annual Information Statement (AIS) and tax return.
Role of Form 61A – Statement of Financial Transactions (SFT)
- What it is: An annual statement that financial institutions and registrars must file, disclosing specified high-value transactions under Section 285BA, Rule 114E.
- Why it matters: This enables the department to match cash inflows and investments with your ITR.
- Deadline: Entities must file it by end of May each year. Delay or incorrect filing attracts penalties.
Transactions That Commonly Trigger Notices
| Transaction Type | Threshold (₹) | Reported By |
|---|---|---|
| Cash deposit in FD or savings account | 10,00,000 | Banks |
| Cash deposit/withdrawal in current account | 50,00,000 | Banks |
| Sale or purchase of property | 30,00,000 | Sub-registrars |
| Cash investment in bonds, MFs, debentures, shares | 10,00,000 | Brokers/Trustees |
| Credit card bills paid in cash | 1,00,000 | Banks |
| Credit card payments (any mode) | 10,00,000 | Banks |
| Purchase of forex, drafts, RBI instruments | 10,00,000 | Banks |
Penalties for Non-Compliance
- Form 61A not filed: ₹500 per day after 30 days from notice.
- Incorrect filing: Must be corrected within 10 days, else penalty may rise to ₹50,000.
Key Sections You Should Know
- Section 245: If you don’t respond to a notice within 30 days, the department can adjust any tax demand against your future refund and may levy penalties.
- Section 245N (Advance Ruling): Applies mainly to non-residents and some PSU cases, less relevant for regular taxpayers.
How to Respond to a Cash Deposit Notice
- Check your AIS/Form 26AS: Ensure your bank deposits, investments, and property transactions are correctly reflected.
- File a revised ITR if needed: Permitted only if the original return was filed on time.
- Locate your assessing officer: Use the “Jurisdiction Details” link on the income tax portal.
- Respond within 30 days: Delay may invite automatic adjustments or additional scrutiny.
Best Practices for Taxpayers
- Always report cash deposits and high-value transactions in your return.
- Reconcile your ITR with AIS and Form 26AS before filing.
- Consult a Chartered Accountant if unsure about reporting requirements.
- Keep an eye on deadlines — both for filing returns and responding to notices.