Depositing big cash sums? Tax rules, I-T notices and what to watch out for

Even legitimate cash deposits can invite I-T notices if not explained properly, experts warn

In an age where digital payments dominate, many Indians still rely on cash transactions. But did you know that depositing large sums of cash into your bank account could attract the attention of the Income Tax (I-T) department? Here’s what you need to know about the thresholds, consequences, and how to stay compliant.

 

What are the rules for cash deposits?

 

According to section 285BA of the Income Tax Act, banks are required to report cash deposits exceeding Rs 10 lakh in savings accounts and Rs 50 lakh in current accounts in a financial year to the I-T Department, said SR Patnaik, partner (Head – Taxation), Cyril Amarchand Mangaldas.  Calculate Income Tax: Income Tax Calculator Tool

 

Surajkumar Shetty, partner at JSA Advocates and Solicitors, added that even deposits over Rs 50,000 in a single day require quoting of PAN. Multiple smaller deposits that cumulatively cross the threshold can also be flagged.

 

“Banks file these reports in Form 61A, which helps the tax department monitor high-value transactions for potential tax evasion,” said Amit Bansal, Partner, Singhania & Co.

 

What happens if you exceed the limits?

 

Crossing these limits doesn’t automatically mean you’ve done something wrong. But if your deposits don’t align with your declared income, expect scrutiny.

 

“The tax authorities may issue notices under Section 148 or 133(6) to verify the source of funds,” said Bansal.

 

If you fail to justify them, the deposits may be treated as unexplained cash credits under Section 68 and taxed at 60 per cent plus surcharge and cess, warned Patnaik. Penalties can range from 10 per cent to even 200 per cent in severe cases.

 

In some situations, Shetty noted, large unexplained cash transactions could also draw the attention of anti-money laundering authorities.

 

How to justify large cash deposits

 

“If questioned, individuals must provide clear proof of the source,” advised Swapnil Sahoo, assistant professor, Great Lakes Institute of Management.

 

Experts suggest these key documents to keep handy include:

 

Sale deeds or receipts (for asset sales)

 

Gift deeds and donor details (for gifts)

 

Loan agreements and lender PAN details (for private loans)

 

Agricultural income records (like landholding proof and mandi receipts)

 

“Taxpayers must also maintain original documents like invoices and payment receipts, especially for cash-intensive businesses,” added Shetty.

 

Are there exceptions for gifts and agricultural income?

 

Cash gifts up to Rs 50,000 in a year are exempt. But anything beyond that from non-relatives is taxable, while gifts from specified relatives are exempt if documented properly, said Patnaik.

 

Agricultural income is also tax-exempt but must be backed by proper records.

 

“Misreporting agricultural income as a cover for unaccounted cash can lead to prosecution,” warned Bansal.

 

The bottom line

 

Depositing cash into your bank account isn’t illegal, but failing to report and justify large amounts could land you in trouble. Maintain transparency, preserve documentation, and when in doubt, consult a tax expert.