The Statement of Financial Transactions is a mandatory reporting framework under which specified entities — banks, post offices, sub-registrars, mutual fund companies, stock exchanges, insurance companies, credit card companies, and now crypto platforms — report high-value transactions to the Income Tax Department by May 31 of each year.

Each reporting entity files a Form 61A (now also Form 61B for foreign account reporting) listing transactions above the prescribed thresholds, cross-referenced with the customer’s PAN. This data flows directly into your Annual Information Statement (AIS) — which you can download from the e-filing portal at any time. What appears in your AIS is not a suspicion — it is a verified transaction record from a regulated financial institution.

Here is why this matters practically: the department’s processing system compares your AIS data against your filed ITR automatically. Where a high-value transaction in AIS has no corresponding entry in your return — no declared income, no capital gains, no business receipt that could explain it — the system flags a mismatch. That mismatch is what triggers notices, not the transaction itself.

This is the rule that caught my Chandni Chowk client. Thresholds are not per-account or per-bank — they are per-PAN, aggregated across all institutions for the financial year. The reporting entity aggregates across all accounts of the same type held in the same person’s name at their institution. The department then aggregates further across all reporting entities.

Cash Deposit Example — How ₹10 Lakh Threshold Works

Joint Account — Both Holders Are Separately Attributed

If you have a joint savings account with your spouse and ₹8 lakh in cash is deposited — both PAN holders have ₹8 lakh attributed to them individually in the AIS. The same ₹8 lakh appears against two PANs. If either of them has other deposits at other banks that push the aggregate above ₹10 lakh — the threshold is crossed for that person. Maintaining joint accounts does not halve the reporting impact.

Login to incometax.gov.in → Services → Annual Information Statement. The AIS has two parts: Part A (general information — name, PAN, address, Aadhaar) and Part B (information about income, transactions, taxes paid). High value SFT transactions appear in Part B under the relevant category.

For each entry, the AIS shows:

• The SFT code (e.g., SFT-003 for savings account cash deposits)
• The reporting entity (which bank or institution reported it)
• The amount
• The financial year
• Your status — whether you have submitted feedback on this entry

Alongside the AIS is the Taxpayer Information Summary (TIS) — a processed version that shows the net figure after feedback and gives you the “processed value” that the department will use if you do not update it. Always check both.

Situation 1 — The AIS Entry is Correct and You Already Declared the Income

The most comfortable situation. You deposited ₹12 lakh in cash from your business receipts, declared it as business income in your ITR, and paid tax on it. The AIS entry of ₹12 lakh matches your ITR perfectly. The system reconciles without flagging anything. You do nothing. This is how it should work.

Situation 2 — The AIS Entry is Correct But You Did Not Declare the Income

This is the situation that requires action. The ₹12 lakh cash deposit is genuinely yours — from business, savings, family transfers, whatever — but your ITR for that year did not explain the source. Options:

• File an Updated Return (ITR-U): Under Section 139(8A), you can file a revised ITR with updated income within 2 years from the end of the relevant AY — paying the base tax, interest, and an additional tax of 25% (if filed within 1 year) or 50% (if filed in the second year). This closes the matter cleanly.
• Respond to any notice received: If a Section 142(1) or 148A notice has arrived asking for an explanation — respond with documentation of the source (business books, bank statements, family gift evidence, etc.)
• Prepare documentation even before any notice: Keep the source evidence ready — the department’s automated system may send a query, and having records ready reduces response time significantly.

Situation 3 — The AIS Entry is Wrong

This happens more often than people realise. A bank reports a transaction against the wrong PAN (common in joint accounts, family businesses, or employer-related accounts). Or the amount is duplicated. Or a transaction was reported in the wrong financial year.

In this case, submit feedback directly in the AIS portal:

1. Login → AIS → Click on the specific entry
2. Click “Submit Feedback”
3. Select the appropriate feedback type: “Information is incorrect,” “Information relates to other PAN / person,” “Information is duplicate,” or “Income is not taxable”
4. Provide remarks explaining the error
5. The reporting entity reviews and updates — typically within 15–30 days

Submitting AIS feedback does not guarantee the entry is removed — the reporting entity must confirm your feedback before the AIS is updated. Until then, file your ITR using the correct figures and explain any residual discrepancy in the relevant schedule.

Property Purchase or Sale (SFT-014 — ₹30 Lakh Threshold)

Every property purchase or sale above ₹30 lakh is reported by the sub-registrar to the department. This appears in your AIS. If you sold a property and the sale price appears in AIS — the department expects to see capital gains declared in your ITR. If you purchased property — they look for the source of funds being consistent with your declared income. A ₹80 lakh property purchase on a ₹6 lakh declared income is a significant red flag unless supported by loan documentation, savings history, and family fund evidence.

Cash Deposits in Bank (SFT-003 / SFT-005)

Savings account cash deposits aggregating ₹10 lakh or more, current account deposits aggregating ₹50 lakh or more. These are the most common AIS entries triggering queries. The correct response is straightforward documentation of the source — business receipts, agricultural income, professional income, family funds. The source must be credible and consistent with your overall income profile.

Mutual Fund Purchases (SFT-012 — Half-Yearly Filing)

From 2026, mutual fund companies file SFT half-yearly (not annually). This means your MF investments are in the department’s system within weeks of the transaction — not months. SFT-012 reports aggregate MF purchases above ₹10 lakh per year. Redemptions are separately reported. Ensure your capital gains from MF redemptions are correctly declared in Schedule CG of your ITR.

Credit Card Payments (SFT-008)

Annual credit card payments above ₹10 lakh (non-cash) or ₹1 lakh (cash payments of credit card bill) are reported. A common pattern that triggers automated scrutiny: declared income of ₹8 lakh with credit card spending of ₹14 lakh. The gap is visible in the AIS and prompts an inquiry about the source of the additional ₹6 lakh. If you have undeclared income supporting the spending — that is the core issue. If you drew down savings or received family support — document it.

Case 1 — The Chandni Chowk Merchant (Opening Story)

The ₹12.8 lakh in SFT-005 entries were all legitimate business cash receipts — the merchant was simply operating with cash as many small traders do. The problem was that his previous year’s ITR had underreported business income. We filed an ITR-U for the previous year, paid the additional tax plus the 25% additional charge, and submitted AIS feedback confirming the entries were business income. The matter closed. The total cost — additional tax, interest, and 25% surcharge — was approximately ₹1.8 lakh. The alternative, waiting for a notice, would have involved Section 270A penalty of up to 200% on underreported income. The maths strongly favoured voluntary disclosure.

Case 2 — The Wrong PAN in Joint Account

A retired teacher’s AIS showed a ₹15 lakh FD entry she knew nothing about. Investigation revealed that her son’s employer had made an FD in his name — at a bank where she was also an account holder — and the bank had linked the FD to her PAN due to a joint account linkage error. We submitted AIS feedback (“Information relates to other PAN”) with the bank statement showing the FD was entirely in her son’s name. The entry was corrected within 21 days. Her ITR was filed with her correct figures — zero impact on her tax liability.

Case 3 — Property Sale Not Declared

A client sold an agricultural plot near Panipat for ₹45 lakh in March 2025. He assumed agricultural land sale was always exempt and did not declare capital gains. The sub-registrar’s SFT-014 entry appeared in his AIS. The department issued a Section 142(1) inquiry in August 2026 asking for details of the land sale. We verified the land was genuinely agricultural, outside municipal limits, and met the Section 2(14) exemption criteria. Our detailed response with land records, khasra numbers, and registration documents resolved the inquiry. No tax was payable — but the documentation had to be complete to make that case.
🔗 Capital Gains Tax Exemptions — Section 54, 54F, 54EC Complete Guide

Assuming the transaction is “too small” to be reported:
The aggregation rule means multiple smaller transactions summing above the threshold are treated as a single reportable transaction. ₹3 lakh each at four banks = ₹12 lakh against your PAN. No single transaction was above ₹10 lakh. All four are reported in the AIS as a ₹12 lakh aggregate entry.

Not checking AIS before filing ITR:
Many taxpayers file their ITR based on what they remember — then download the AIS months later and discover entries they did not account for. By then, the ITR is filed, the mismatch is in the system, and correction requires an ITR-U with additional tax. Checking AIS before filing takes 15 minutes and prevents this entirely.

Ignoring AIS feedback that was submitted but not accepted:
Submitting AIS feedback does not guarantee the entry changes. If the reporting entity does not confirm your feedback, the AIS retains the original entry. Check the feedback status — if it shows “pending” for more than 30 days, follow up with the reporting entity directly. File your ITR based on correct facts regardless of whether the AIS has been updated.

Assuming the department cannot see crypto transactions:
From April 2026, Indian crypto exchanges are formally added as SFT reporting entities. VDA transactions above specified thresholds now appear in AIS — same as bank deposits or property purchases. Undeclared crypto gains are no longer invisible to the system. File correctly and on time.