The Income Tax Department is no longer just relying on traditional methods to track down tax evaders. With the help of cutting-edge tools like artificial intelligence and data analytics, the department now monitors financial activities more closely than ever. Whether it’s your bank transactions, property purchases, or investment habits—everything is under the scanner.
Gone are the days when digital transactions were thought to fly under the radar. Financial institutions are now required to report large transactions—including UPI transfers, card payments, and significant cash deposits or withdrawals—once they cross certain limits. So if you’re engaging in any major cash transactions, it’s time to take note.
Let’s break down five types of cash transactions that can put you in the crosshairs of the Income Tax Department.
1. Large Cash Deposits in Savings Accounts
Depositing ₹10 lakh or more in a savings account during a single financial year (April 1 to March 31) will automatically be reported to the tax authorities by your bank. This rule applies even if the amount is spread across multiple accounts or banks.
This doesn’t mean you’re guilty of tax evasion, but it does raise questions. If you’re unable to explain the source of the funds clearly, you may face penalties or even a formal investigation.
2. Fixed Deposits Made in Cash
With rising interest rates, fixed deposits (FDs) have become a popular investment choice. However, if you invest ₹10 lakh or more in FDs using cash—even across multiple banks—the transaction is flagged and reported.
Make sure you have valid documentation proving where the money came from to avoid any tax-related troubles.
3. Cash Investments in Stocks, Mutual Funds, or Bonds
If you’re investing ₹10 lakh or more in financial instruments like shares, mutual funds, bonds, or debentures using cash, be prepared for scrutiny. Since cash transactions lack a digital trail, they often invite suspicion.
Although a notice may not be issued immediately, any mismatch between your declared income and the investment could prompt an inquiry.
4. Paying Credit Card Bills in Cash
Paying off credit card bills of ₹1 lakh or more in cash—especially if done regularly—could lead to questions from tax officials. These transactions are recorded and shared with the tax department.
To stay on the safe side, it’s advisable to pay high-value bills through digital channels and maintain proper records of income.
5. Property Deals Involving Cash Payments
Purchasing real estate worth ₹30 lakh or more (₹50 lakh in urban areas and ₹20 lakh in rural regions, depending on state rules) requires you to declare the source of funds used.
If a portion of the payment is made in cash and not properly documented—either in registration papers or through Form 26QB—the tax department may initiate a probe and ask for evidence.
What to Do If You Receive a Tax Notice
Receiving a notice can be unsettling, but there’s no need to panic. Start by organizing all relevant financial documents, including:
- Bank account statements
- Investment proofs
- Source of funds (like business income, gifts, or inheritance)
If you’re unsure about how to respond, consult a reliable Chartered Accountant or tax advisor. Being transparent and following tax regulations can help you stay on the right side of the law.
Final Tip: As the government ramps up its digital oversight, the best defense is clean, traceable financial behavior. Keep your records in order and think twice before making large cash transactions.