Can you get an income tax notice for depositing large cash in your savings bank account?

If you have recently deposited a large sum of money, like ₹15 lakh, into your savings account, you might be wondering if it will trigger a tax notice from the Income Tax Department.

It is a common concern as large cash deposits can sometimes raise red flags, but does it automatically mean the tax authorities will come knocking?

Can you get an income tax notice for depositing large cash in your savings bank account?

According to Balwant Jain, a Mumbai-based tax and investment expert, receiving a notice from the income tax department is possible if you make large or unexplained cash deposits. He explains: "If the department issues a notice under Section 68, you will need to provide proper documentation—like business records, gift deeds, or sale proofs- to explain the source of the funds.”

Under Section 285BA of the Income Tax Act, banks are required to report cash deposits exceeding ₹10 lakh in a financial year. This rule applies to individuals, firms, and companies, and covers both single and cumulative deposits.

Income tax rules for large cash deposits

• Deposits exceeding ₹50,000 in a single day require you to quote your PAN.

• Large deposits over ₹10 lakh may trigger notices under Sections 148 or 133(6) to verify the source of funds.

• Section 269ST limits cash receipts to ₹ 2 lakh in certain situations.

How the tax department tracks large transactions

The Income Tax Department keeps a close eye on large transactions through the following methods:

• Annual Information Return (AIR)

• Statement of Financial Transactions (SFT)

• Tax Deducted at Source (TDS)

• Tax Collected at Source (TCS)

• Income Tax Return (ITR) filings

Income tax implications of unexplained cash deposits

If the IT Department issues a notice under Section 68, you will need to justify the source of the cash, which could include providing evidence such as business sales records, gift deeds, inheritance documents, or a withdrawal from another bank account.

If you fail to explain the source adequately, the funds could be treated as unexplained income, and you will face high tax rates.

According to Balwant Jain, the income is taxed at 60% plus any applicable penalties.

How to avoid penalties

• Keep clear and detailed records of all large transactions, including deposits and withdrawals.

• Ensure your funds come from legitimate sources, like documented business income, gifts, or savings.

Understanding the tax rules on cash deposits

You must prove the exact source of the cash, such as business sales, withdrawals from other bank accounts, documented gifts, or previously taxed income.

Cash found outside the books

If the IT Department discovers large sums of cash, you must explain how you acquired it.

If you fail to provide a satisfactory explanation for your large cash deposits, the consequences can be severe:

The unexplained income is taxed at a flat 60%, along with applicable surcharges and cess. "Such a tax rate of 60% will be further increased by a 25% surcharge, 6% penalty, i.e., the final tax rate comes out to be 84% (including cess). Provided that such 6% penalty shall not be levied when the income under Section 68, 69, etc., has been included in the return of income and tax has been paid on or before the end of relevant previous year," as per the income tax department.

You can’t apply the basic income tax exemption limit, nor claim deductions or set off losses against the unexplained income. The penalty tax applies to the entire amount.

Depositing Rs 20 lakh in your savings account doesn’t automatically trigger a tax notice, but the Income Tax Department will certainly look into it if the source of the funds is unclear. Proper documentation and transparency are essential for avoiding complications with the tax authorities.