Bank Deposits & SFT: The Thresholds That Trigger Automated Notices

In the era of Digital India, "Privacy" in banking transactions is a relic of the past. For Assessment Year 2026-27, the Income Tax Department doesn't wait for your tax return to see your wealth; they receive a steady stream of data directly from your banks via the Statement of Financial Transactions (SFT).

Many taxpayers believe that as long as they deposit money in "small chunks," they can avoid the department's radar. This is a dangerous misconception. The department's AI system aggregates deposits across all your bank accounts linked to a single PAN. If your "Cash Footprint" crosses specific legal thresholds, a notice is generated automatically.

1. The ₹10 Lakh Savings Account Threshold

Under the Income Tax Rules, banks and post offices must report any person who makes:

• Aggregate cash deposits of ₹10 Lakh or more in a financial year.
• In one or more savings accounts (excluding current accounts and time deposits).

The Trap: If you have three savings accounts in three different banks and deposit ₹3.5 Lakh in each, you have triggered the ₹10.5 Lakh aggregate limit. The department will see the total, not the individual bank entries.

2. Current Account & Time Deposit Limits

The rules are different for business and investment accounts:

• Current Accounts: Banks report if aggregate cash deposits OR withdrawals exceed ₹50 Lakh in a year.
• Fixed Deposits (FDs): Banks report if a person makes one or more time deposits (other than renewals) aggregating to ₹10 Lakh or more in a year. This includes cash and non-cash deposits.

3. The Power of AIS (Annual Information Statement)

The SFT data reported by banks flows directly into your Annual Information Statement (AIS) on the e-filing portal.

Before you file your AY 2026-27 ITR, you must check your AIS. If the AIS shows a ₹12 Lakh cash deposit, but your reported income (salary/business) is only ₹6 Lakh, the system identifies a "Mismatch." This is the primary trigger for a Section 143(1) Intimation or a Section 148 Reassessment Notice.

4. Section 68: The "Unexplained Cash Credit" Penalty

If you receive a notice for high-value deposits, the burden of proof is on YOU to explain the source. If the department isn't satisfied:

• The amount is added to your income under Section 68.
• It is taxed at a punitive rate of 60% plus a 25% surcharge and 4% cess.
• Effective Tax Rate: 78%.
• Additionally, a penalty of 10% of the tax may be levied under Section 271AAC.

Legal Reference: SFT Reporting Duties

The legal obligation for banks to report your data is found in Section 285BA.

Section 285BA of the Income Tax Act—Any person (being a bank, post office, registrar, etc.) who is responsible for registering or maintaining books of account... shall furnish a statement in respect of such specified financial transaction... to the prescribed income-tax authority.

Rule 114E of the Income Tax Rules defines the specific thresholds for these transactions.

Common Mistakes with Bank Deposits

1. Depositing Cash from "Matured FDs": When an FD matures and you withdraw it in cash, then deposit it into a savings account a week later, the bank will report the "New Deposit" if it's above ₹10 Lakh. While you have a valid source, you will still have to respond to the automated query in your AIS to explain the circular movement of funds.
2. Using Friends' Accounts: Some taxpayers try to split their cash across friends' or employees' accounts. This triggers Benami Transactions Act scrutiny for both the account holder and the actual owner of the money.
3. Ignoring the TCS on High Withdrawals: Under Section 194N, if you withdraw more than ₹20 Lakh (or ₹1 Crore) in cash, the bank will deduct TDS. This deduction is a permanent "Red Flag" that tells the department you are handling massive amounts of cash.

Conclusion

To simplify your filing process and avoid the 78% tax trap, ensure your bank deposits are always supported by documented sources (salary, documented business sales, or exempt gifts from relatives).

Always download your AIS at least once every quarter to ensure there are no "ghost entries" or errors in reporting by your bank. If you find a mismatch, file a "Feedback" on the portal immediately to correct the data before the final filing season. For more on how to manage high-value transactions, see our guide on Cash Transaction Limits & Penalties.