Depositing cash is not illegal, and a deposit being reported does not make it taxable. A notice comes when the department sees large cash deposits that your return does not explain, or when you have not filed a return at all. With the right records, most of these queries close with a simple reply.
What banks report to the department
Banks and other institutions file a statement of financial transactions (SFT) each year. For cash, the main triggers are:
- Cash deposits of ₹10 lakh or more in a year across your savings accounts
- Cash deposits of ₹50 lakh or more in a year across your current accounts
- Fixed deposits of ₹10 lakh or more in a year with one bank
- Credit card bills of ₹1 lakh or more paid in cash in a year
These entries show up in your Annual Information Statement (AIS) on the e-filing portal, linked to your PAN. Check your AIS before you file each year.
How the query reaches you
- An email or SMS campaign asking you to review a high-value transaction, with a link to the compliance portal
- A request for information on the e-filing portal, asking you to explain the source of the cash
- A formal notice to file a return or to reopen an earlier year, if the department believes income has escaped tax
Always confirm the notice on the e-filing portal itself, and do not reply through links in messages.
Common explanations that are accepted
- Business sales collected in cash and recorded in your books
- Cash withdrawn earlier and deposited again
- Gifts from relatives, supported by a gift deed and the relative's own records
- Sale of agricultural produce, jewellery or another asset
- Past savings, supported by earlier returns that show enough income
Documents to keep ready
- Bank statements for the year, with the deposits marked
- Cash book, sales register and invoices, if you run a business
- Withdrawal slips or statements for any cash re-deposited
- Gift deeds, sale agreements or loan papers, as relevant
- Income tax returns for the year and the years before
How to reply
- Open your AIS and find the reported cash entry. If the figure is wrong or belongs to another PAN or year, give feedback there.
- Go to the compliance portal from the e-filing portal and open the transaction under review.
- Explain the source of the cash in a few clear lines and upload the supporting documents.
- If you should have filed a return and did not, file it, using a belated or updated return if the time allows.
- Submit before the due date and keep the acknowledgement.
What happens if the cash is not explained
Cash that cannot be explained can be treated as unexplained money. It is then taxed at a special rate, without deductions or the basic exemption, and interest and penalty can follow. A clear, documented reply at the first stage usually avoids this.
Other cash rules to know
- You cannot receive ₹2 lakh or more in cash from one person in a day, for one transaction or for one event. The penalty can equal the amount received (section 269ST of the 1961 Act; the 2025 Act carries the same rule).
- For FY 2025-26, you must file a return even if your income is below the taxable limit, if your total deposits in the year are more than ₹1 crore in current accounts or ₹50 lakh or more in savings accounts.
- Businesses should run cash sales through a current account and record them in the books, so deposits match the return.
Quick answers
How much cash deposit is reported to the income tax department?
Banks report cash deposits of ₹10 lakh or more in a year across savings accounts, and ₹50 lakh or more across current accounts. These appear in your Annual Information Statement.
Will I get a notice for depositing cash?
Not just for depositing it. A query usually comes when large deposits are not explained by the income in your return, or when you have not filed a return.
How do I reply to an income tax notice for cash deposits?
Check the entry in your AIS, then explain the source of the cash on the compliance portal and upload supporting documents such as bank statements, books of account or gift deeds.
How we can help
Our team of chartered accountants reads the notice, checks it against your records and replies on the portal for you. See our Income tax notices service, or message us on WhatsApp with a copy of the notice.
This article is general information, not advice for your situation. Tax rules change, so speak to us before acting on it.