10 Transactions That Can Trigger an Income Tax Notice

Most taxpayers think the Income Tax Department only looks at the return they file. In reality, banks, registrars, mutual fund houses, brokers and card companies send their own report about you every year. When their numbers do not match your Income Tax Return (ITR), the system can send a notice. This guide explains the 10 transactions monitored by the Income Tax Department, the limits that matter, and what you can do to stay safe.

How Does the Income Tax Department Track Your Transactions?

Banks and other institutions file a Statement of Financial Transactions (SFT) with the department. Your PAN links these reports and shows them in your Annual Information Statement (AIS). Data-matching then compares them with your declared income. If the gap is large, you may receive an intimation, a notice asking for an explanation, or an e-campaign message on the e-filing portal.

10 Transactions Monitored by the Income Tax Department

1. Cash Deposit in a Savings Account

₹10 lakh or more in a financial year

Banks report total cash deposits in savings accounts (all your accounts at one bank are added up) once they reach ₹10 lakh in a year. The deposit itself is not illegal. The notice usually comes when the amount does not match the income in your ITR.

Safe practice: Keep the source ready: salary, sale proceeds, business receipts, or a withdrawal slip. Prefer UPI or net banking for large receipts.

2. Cash Deposit or Withdrawal in a Current Account

₹50 lakh or more in a financial year

Current accounts have a higher reporting limit because of business activity, but cash deposits and withdrawals of ₹50 lakh or more in a year are still reported. Large cash withdrawals can also attract TDS.

Safe practice: Match your cash book, sales records and GST returns with the bank entries.

3. Credit Card Bill Payment in Cash

₹1 lakh or more in a financial year

Paying a credit card bill in cash is one of the easiest ways to get flagged. Cash payments of ₹1 lakh or more in a year are reported by the card issuer.

Safe practice: Pay card bills through net banking, UPI or auto-debit from your own bank account.

4. Total Credit Card Bill Payments (Any Mode)

₹10 lakh or more in a financial year

Even if every payment is made online, the combined card bill payments of ₹10 lakh or more in a year are reported. If your spending is far higher than your declared income, the system notices.

Safe practice: Check the amount shown in your AIS (Annual Information Statement) against your income.

5. Buying or Selling Property

₹30 lakh or more (transaction value or stamp-duty value)

Registrars report property deals of ₹30 lakh or more. Buyers and sellers should also remember TDS at 1% on purchases above ₹50 lakh and the capital gains reporting for sellers.

Safe practice: Pay through banking channels, keep the sale deed, and report capital gains correctly.

6. Fixed Deposits

₹10 lakh or more in a financial year

Banks, post offices and NBFCs report time deposits of ₹10 lakh or more in a year. Interest earned is taxable and must appear in your return.

Safe practice: Declare FD interest every year, even if TDS has already been deducted.

7. Foreign Travel or Forex Purchase

₹10 lakh or more in a financial year

Authorised forex dealers report foreign currency purchases and card loading at ₹10 lakh or more in a year. PAN or Aadhaar details are collected for forex transactions.

Safe practice: Use your own bank account, keep invoices, and plan big overseas spends against declared income.

8. Investment in Shares, Mutual Funds and Bonds

₹10 lakh or more in a financial year

Companies, mutual fund houses and brokers report large purchases of shares, debentures, bonds and mutual fund units. Capital gains and dividends must be reported in the correct ITR schedule.

Safe practice: Download your capital gains statement and match it with AIS before filing.

9. Cash Gifts Without Documentation

Above ₹50,000 in a financial year

Gifts from relatives are exempt, but gifts from non-relatives above ₹50,000 in a year are taxable as income from other sources. Cash gifts are the hardest to prove.

Safe practice: Use bank transfers, keep a gift deed, and get the donor’s PAN and a short declaration.

10. Cash Received From One Person in a Day

₹2 lakh or more in a single day

Accepting ₹2 lakh or more in cash from one person in a day, for one transaction, or for one event is restricted by law (old Section 269ST, with a corresponding provision in the Income-tax Act, 2025). The penalty can be equal to the amount received.

Safe practice: Insist on bank transfer, UPI, cheque or demand draft for amounts of ₹2 lakh and above.

Common Reasons for an Income Tax Notice

• High-value transactions in AIS that are missing from your ITR
• Income shown in the return is far lower than your spending or investment
• Cash deposits with no clear source
• Wrong or missed capital gains, FD interest or dividend income
• Mismatch between TDS/TCS credit claimed and Form 26AS

What to Do If You Get an Income Tax Notice

1. Do not panic or ignore it. Note the section, date and due date.
2. Verify it on the e-filing portal (Pending Actions / e-Proceedings). Fake notices and phishing emails are common.
3. Check your AIS and Form 26AS for the flagged transaction.
4. Collect proof: bank statements, sale deed, gift deed, invoices, loan papers.
5. Reply online before the deadline. If you missed income, file a revised or updated return where the law allows.
6. Consult a Chartered Accountant for large or complex cases.

10 Simple Tips to Stay Notice-Free

• Prefer UPI, net banking, NEFT/RTGS and cheques for large payments.
• Check your AIS before every ITR filing.
• Report all income: salary, interest, rent, dividends and capital gains.
• Keep documents for gifts, loans and property for at least 6 years.
• Never accept ₹2 lakh or more in cash from one person in a day.
• Pay credit card bills from your own bank account.
• Match your investments with a legitimate income source.
• Keep your PAN, mobile number and email updated on the e-filing portal.
• Respond to every notice within the deadline.
• Keep a simple yearly record of high-value transactions.

Frequently Asked Questions

Does crossing a limit mean I will get an income tax notice?

No. These are reporting limits. Banks and other institutions report the transaction in the Statement of Financial Transactions (SFT). A notice is more likely only when the reported amount does not match your income or return.

Where can I see what the Income Tax Department knows about me?

Log in to the e-filing portal and open your Annual Information Statement (AIS) and Taxpayer Information Summary (TIS).

What should I do if I receive an income tax notice?

Read the notice, note the section and deadline, log in to the e-filing portal, check the e-Proceedings or Compliance Portal tab, collect documents, and reply on time. Take help from a Chartered Accountant if the amount is large.

Are cash deposits above ₹10 lakh illegal?

No. They are reportable, not illegal. You must be able to show a genuine and taxed source for the money.

Do these limits apply to the new Income-tax Act, 2025?

The Income-tax Act, 2025 came into force on 1 April 2026 and renumbers sections, but SFT reporting continues. Always check the latest rules on the official portal before acting.

Disclaimer: This article is for general information only and is not tax or legal advice. Thresholds and section numbers can change, especially after the Income-tax Act, 2025 came into force on 1 April 2026. Please verify on incometax.gov.in or consult a qualified Chartered Accountant before acting.