Income Tax Notices Made Simple: What Happens When You Deposit Large Cash

Imagine this: you’ve been saving for years, or maybe you just sold an old asset. You deposit a big lump sum of cash into your savings account. A few months later, a notice from the Income Tax Department (ITD) arrives. Panic sets in.

You’re not alone. With India’s digital monitoring system, large cash deposits are one of the most common reasons people receive tax notices. But here’s the good news—most notices are simply requests for clarification, not proof that you’ve done something wrong.

Why Your Bank Account Gets Flagged

Banks are required to report high‑value transactions to the ITD under Specified Financial Transactions (SFTs). This means whenever you deposit or withdraw large amounts of cash, the bank informs the tax department.

Key Cash Deposit Limits You Should Know

The Real Concern: Unexplained Income

The ITD mainly wants to confirm the source of your money. If you can’t explain it properly, the department may treat it as undisclosed income under Section 68 of the Income Tax Act.

Possible Consequences if You Don’t Explain

• Heavy Tax: Unexplained cash can be taxed at 60% plus surcharge and cess, which may go beyond 80%.
• Penalties: Extra fines for misreporting or non‑compliance.
• No Exemptions: You can’t claim deductions or basic exemption limits on this income.

Got a Notice? Here’s Your 4‑Step Action Plan

1. Verify the Notice

Log in to the official Income Tax e‑filing portal with your PAN. Genuine notices appear under the “e‑filing” or “Compliance” section. Check details like the financial year, bank account, and deposit amount.

2. Gather Supporting Documents

Show proof that your cash came from a legitimate source. Examples:

• Business/Sales Income: Invoices, sales registers, audited accounts.
• Sale of Asset (property, gold, shares): Sale deed, broker statements.
• Previous Withdrawals: Bank statements showing earlier withdrawals.
• Gift from Relative: Gift deed, proof of relative’s funds.
• Loan Received: Loan agreement with lender.
• Agricultural Income: Proof of farming operations.

3. File Your Response Online

Log in to the portal and go to the compliance section. Give a clear explanation for each deposit. Upload supporting documents in the required format. Submit your response before the deadline.

4. Reconcile with AIS/Form 26AS

Before filing your next return, check your Annual Information Statement (AIS) and Form 26AS. Make sure all reported transactions match your tax return.

How to Avoid Future Notices

• Use Digital Payments: Prefer NEFT, UPI, or cheques for large transactions.
• Maintain Records: Keep receipts and documents for big cash dealings.
• Declare Properly: Report all income sources in your tax return.
• Consult a CA: For large or complex deposits (inheritance, capital gains), get professional advice before depositing.

Final Word

An Income Tax notice doesn’t mean you’re guilty—it just means the system noticed something unusual. With proper documents and a timely response, you can clear the issue easily and continue managing your money with peace of mind.

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