New Delhi: If you are depositing large amounts of cash in your bank account, this could attract the attention of the Income Tax Department. While most people consider depositing money in banks completely
safe, transactions exceeding prescribed limits in a financial year can be flagged. Banks and cooperative banks are required to report such transactions to the tax authorities.
Why People Are Worried
Recently, the Income Tax Appellate Tribunal (ITAT) in Delhi clarified that if a substantial amount is deposited in a bank account, the department has full authority to inquire about the source. While depositing cash itself is not illegal, unaccounted money without a clear source can be treated as undeclared income, potentially signaling tax evasion or black money.
Deposits totaling Rs 10 lakh or more across one or multiple accounts automatically get reported to the Income Tax Department. The authorities can then issue notices or request explanations regarding the source of funds.
Steps to Take if You Receive a Notice
If you receive a notice, there is no need to panic. First, identify the reason behind the notice. For large cash deposits, you will need to provide proof of income or source. Examples include proceeds from property sales, business income, investments, or gifts. Submit receipts, bank statements, and relevant documentation to clarify the source and avoid legal complications.
How to Avoid Notices
To prevent notices:
Monitor Cash Deposits: Keep total deposits below Rs 10 lakh across accounts.
Maintain Transparency: Document the source of any large deposits.
Use Digital Payments: Prefer online transactions or bank transfers for automatic records.
Respond Promptly: Late replies can lead to penalties.
Declare All Income: Ensure all income sources are correctly reported in your ITR.
Cash Withdrawals Also Monitored
Income Tax scrutiny is not limited to deposits; frequent large withdrawals may also attract attention. Banks report unusual withdrawals that don’t match declared income. Maintaining a consistent and transparent transaction history reduces the risk of notices.
Smart Advice
Transparency is the best defense. Follow tax rules, prioritise digital transactions, maintain records, and accurately report income. Honest financial reporting minimises the risk of notices or penalties from the Income Tax Department.
