Banks and financial institutions are required by law to file Statements of Financial Transactions (SFT) with the Income Tax Department when transactions exceed specified thresholds. This data flows directly into your AIS. Under ITA 2025 (effective from Tax Year 2026-27), SFT is governed by Section 508 — previously Section 285BA of ITA 1961.

Section 69A is the provision the department uses when cash or assets are found in your possession or accounts that you cannot explain. The consequences are among the most severe in Indian income tax law:

A ₹10 lakh cash deposit that cannot be explained costs approximately ₹7.8 lakh in tax alone — 78% of the deposit. Add the 200% penalty for misreporting and the effective cost exceeds the original deposit. There is no scenario where an unexplained cash deposit is financially recoverable without the right documentation prepared in advance.

A provision that many people do not know exists until they violate it: Section 269ST prohibits any person from receiving ₹2 lakh or more in cash in a single transaction, or in aggregate from a single person in a day, or in respect of a single event or occasion. The penalty: 100% of the amount received — on the receiver, not the payer.

The cash deposit consequence: if you deposit ₹2 lakh+ received from a single person as cash, you have violated Section 269ST regardless of the business reason. The deposit itself becomes evidence of the violation. The only safe route for transactions above ₹2 lakh: bank transfer, cheque, or NEFT/RTGS.

When a property is sold and proceeds are deposited in a bank account — the deposit itself is not income. The capital gain — the profit on sale — is income. However, the previous version of this article contained a significant factual error on how this gain is taxed:

When the buyer pays you for a property — they deduct TDS at 1% on the sale value above ₹50 lakh (Section 194IA) and deposit it via Form 26QB. This TDS appears in your AIS. The sub-registrar also reports the transaction. Both data points are already with the department. Declaring the capital gain in your ITR is essential — the department knows about the sale regardless.

Case 1 — Proper Documentation, Notice Closed in 25 Days

Amit — small trader — had ₹14 lakh in cash deposits in his savings account in FY 2024-25. AIS flagged it and a Section 143(1) intimation arrived asking for explanation.

He came to me with all his records. We prepared a source-wise breakdown: ₹9 lakh from business cash sales — matched exactly with his GSTR-3B filings. ₹3 lakh from the sale of a plot of agricultural land in his home village (rural agricultural land — exempt from capital gains). ₹2 lakh was a loan from his brother — with a written loan agreement.

All documents were compiled into a single PDF: GST returns, land sale deed, loan agreement, and a covering letter explaining each source. Submitted via e-Proceedings. The AO closed the case in 25 days. No demand, no penalty.

The lesson: the deposit amount did not determine the outcome. The documentation did.

Case 2 — Unexplained Cash, ₹5 Lakh+ Tax on ₹8 Lakh Deposit

Sunita had ₹8 lakh in cash deposits in her savings account. Her ITR declared income of ₹3.5 lakh. The ₹4.5 lakh gap was the problem. Her explanation: “relatives gave it.” No gift deed, no bank transfer record, no written documentation — just a verbal statement that family members had given her cash.

The department treated ₹4.5 lakh as unexplained income under Section 69A. Tax at 78% effective rate: approximately ₹3.5 lakh. A Section 270A penalty for under-reporting: 50% of the tax = ₹1.75 lakh additionally. Total liability on the unexplained ₹4.5 lakh: over ₹5.2 lakh.

If she had obtained a written gift deed and received the money via bank transfer — zero tax, zero penalty. The difference between the right documentation and no documentation was ₹5.2 lakh.

Case 3 — Fragmented Deposits Across Family Accounts

Rahul had ₹9.8 lakh in cash from business sales he had not declared. To avoid the ₹10 lakh SFT reporting threshold, he split it across three family accounts — ₹3.3 lakh each — in accounts belonging to his wife, father, and himself.

The AIS linked all three accounts through PAN family analysis. The department questioned all three together — treating the combined ₹9.8 lakh as a structured attempt to avoid reporting. The fragmented approach did not reduce scrutiny — it amplified it. The combined income was assessed, the structuring itself was noted as aggravating the case, and all three family members had to provide explanations.

Structured splitting — depositing just below SFT thresholds across related accounts — is one of the clearest red flags in the department’s pattern detection. It never works and always makes the situation worse.
🔗 High Value Transactions in AIS — Complete Guide 2026

Myth 1: “Deposits below ₹10 lakh are safe from notice.”
False. ₹10 lakh is the SFT reporting threshold for savings account cash deposits — the point at which the bank must file a report. It is not a “safe deposit limit.” A ₹5 lakh unexplained deposit can still generate a notice through AIS pattern matching or a specific information tip. The threshold is about bank reporting, not about the department’s knowledge.

Myth 2: “Splitting cash across family members’ accounts avoids detection.”
False — and dangerous. The department analyses related accounts. Family members sharing an address, filing returns together, or linked by PAN family data are seen as a unit for large transaction analysis. Fragmented deposits across family accounts are flagged as structuring — which is treated more seriously than a single deposit of the same amount.

Myth 3: “I will declare income in the next year’s ITR — the deposit is this year.”
False. Income is taxable in the year it is earned. A cash deposit of business income in FY 2025-26 must be declared in the FY 2025-26 ITR — not deferred to a future year. Depositing now and declaring later is not deferred recognition — it is undeclared income for the year of the deposit, which creates a mismatch that the AIS will flag.

Myth 4: “Joint account deposit — my PAN is not linked.”
False. Joint accounts have all holders’ PAN linked. The department sees the account under both PANs. A deposit into a joint account is visible to both holders’ AIS. Additionally, for tax purposes, interest and income from joint accounts are typically attributed to the primary holder.

Myth 5: “NRI sent money from abroad — no Indian tax applicable.”
Partially false. If the NRI sender is a specified relative (spouse, parent, sibling, etc.) and the gift is documented with a proper gift deed and received via banking channel — it is tax-free. However: FEMA compliance is required for outward remittance from the sender’s country, the amount must be received through official banking channels, and the gift deed should be prepared. Without documentation, what looks like a foreign transfer can be treated as unexplained income.

Myth 6: “If the bank doesn’t send me a notice, the Income Tax Department won’t know.”
False. Banks report to the Income Tax Department — not to you — through SFT filings. The bank’s silence to you does not mean silence to the department. The AIS has the data before you file your ITR. The matching happens automatically, not through bank communication.

Before a Large Deposit

1. Identify the source clearly — salary, business, sale proceeds, gift, loan. Be specific about the source and amount.
2. Prepare documentation in advance — not after the deposit. Sale deed for property, gift deed for gifts, loan agreement for loans, GST returns for business income. Documents created after a notice arrives carry less weight than those prepared at the time of the transaction.
3. Use banking channels — for amounts above ₹2 lakh, receive payment via bank transfer rather than cash. This creates a documented trail from the source.
4. Ensure the income will be declared in the correct ITR — if you are depositing business receipts, ensure they appear in your GST returns and ITR income. If capital gains — ensure you will compute and declare them.

After a Deposit — If AIS Shows It

1. Download AIS quarterly — do not wait until ITR filing. If a deposit appears in AIS that you need to explain, prepare the explanation while memories and documents are fresh.
2. If the AIS entry is wrong — submit AIS feedback immediately. Mark it as “not fully correct” or “relates to other PAN” with an explanation. This corrects the source data before it becomes the basis of a notice.
3. Declare in ITR — ensure the income corresponding to the deposit appears in the correct schedule. Do not leave AIS entries without corresponding ITR declarations.