A bank deposit of ₹10 lakh doesn't automatically mean you owe income tax. It can, however, put the transaction in the information reported to the Income Tax Department. If the source of the cash isn't obvious from your return and records, you may be asked to explain it.
Consider a shop owner who deposits ₹12 lakh over a year. Some of it comes from recorded cash sales, some is money withdrawn and later redeposited, and some is from selling an old vehicle. A notice cannot be answered simply by saying, “It is my savings.” Each amount needs a traceable explanation. This guide shows how to make that record, what the reporting thresholds actually mean, and how the rules changed on 1 April 2026.
A reporting threshold is not a tax-free allowance, a blanket ban on cash deposits, or an automatic notice trigger. The legal question is the source and tax treatment of the funds. Different provisions also restrict accepting certain cash receipts, even if depositing money into a bank is not itself prohibited.
Cash deposit limits and reporting thresholds in India (2026)
Banks and other reporting entities furnish Statements of Financial Transactions (SFT). This data may feed the taxpayer's Annual Information Statement (AIS). For Tax Year 2026–27 onward, Rule 237 of the Income-tax Rules, 2026 specifies the following reporting thresholds:
| Transaction | SFT reporting threshold | What to remember |
|---|---|---|
Cash deposits in savings and other eligible non-current, non-time-deposit accounts | ₹10 lakh or more in a financial year for a person with PAN; ₹5 lakh or more for a person without PAN | Aggregation rules apply across accounts of the same nature with the reporting entity. |
Cash deposits in current accounts | ₹50 lakh or more in a financial year | Current-account cash withdrawals are also reportable at the applicable ₹50 lakh threshold, separately. |
Cash withdrawals from current accounts | ₹50 lakh or more in a financial year | Cash withdrawal reporting is distinct from deposit reporting. |
Cash payments towards credit card bills | ₹1 lakh or more in a financial year | Non-cash credit-card payments have a separate ₹10 lakh SFT threshold. |
Time deposits (other than qualifying renewals) | ₹10 lakh or more in a financial year | Applies to specified reporting institutions, not just banks. |
Source: Income Tax Department — Rule 237, Income-tax Rules, 2026 Official ↗.
The ₹5 lakh threshold for specified non-PAN savings deposits under the 2026 SFT rule is a significant detail missing from the old article. The earlier FY 2025–26 framework followed Rule 114E of the Income-tax Rules, 1962. Don't apply a 2026 provision to a prior year without checking the applicable rule.
Does depositing ₹10 lakh automatically trigger an income tax notice?
No. A bank's information return and an assessment notice are different things. You may have a fully explained ₹15 lakh cash deposit and never receive a query; someone with smaller deposits can still be questioned if the department has other information. There is no reliable “safe” cash amount that guarantees a notice will not be issued.
For an SFT threshold calculation, transactions of the same nature are aggregated under the prescribed rule. Do not assume that splitting ₹10 lakh into ten deposits of ₹1 lakh makes reporting or scrutiny disappear.
Cash deposit, cash receipt and tax on income are three different questions
Cash deposit: You put currency into a bank account. The act of depositing money is not, by itself, taxable income.
Cash receipt: You receive money from a buyer, customer, borrower or other person. Restrictions on how certain receipts may be accepted can apply before you deposit the money.
Taxable income: Sales receipts, capital gains, gifts and loans each have different tax rules. A deposit's source determines its treatment—not its bank narration alone.
PAN rules for cash deposits and withdrawals from 1 April 2026
Rule 159 of the Income-tax Rules, 2026 requires PAN to be quoted in documents relating to cash deposits aggregating to ₹10 lakh or more in a financial year in one or more accounts of a person with the specified bank, co-operative bank or post office. It separately provides the same ₹10 lakh aggregate threshold for cash withdrawals. Its exact scope and other account-opening or PAN-related obligations should be read alongside the rule; the ₹10 lakh figure is not an exemption from every other KYC requirement.
The older general rule about PAN for a cash deposit exceeding ₹50,000 in a day is not the corresponding threshold in new Rule 159. However, banks can still require identity information under other applicable KYC rules.
Read Rule 159 on the official Income Tax Department website Official ↗.
Don't confuse PAN quotation with SFT reporting. For a person without PAN, Rule 237 provides a ₹5 lakh SFT reporting threshold for certain non-current-account cash deposits; Rule 159 addresses when PAN must be quoted or applied for. They are different requirements.
Can you receive ₹2 lakh or more in cash from one person?
Separate from bank reporting, Section 186 of the Income-tax Act, 2025 restricts receiving ₹2 lakh or more in cash from a person in a day, for a single transaction, or for transactions relating to one event or occasion from a person, subject to statutory exceptions. The old equivalent for earlier years was Section 269ST of the 1961 Act.
For violations during the applicable 2025 Act period, Section 451 provides for a potential penalty equal to the sum received in contravention of Section 186. The circumstances and exceptions require examination; it is not a universal penalty for simply depositing ₹2 lakh into your own bank account.
For example, receiving ₹2.20 lakh in cash from a customer for one transaction raises an issue under these receipt restrictions. Depositing ₹2.20 lakh from previously accumulated, documented, lawful cash is a different factual question.
Official sources: Section 186 — mode of transactions Official ↗ and Section 451 — penalty Official ↗.
Why the Income Tax Department might question a cash deposit
The department can compare cash-deposit data with your tax returns and other financial information. A mismatch is a reason to investigate, not proof of evasion.
Common situations include cash turnover not reflected in business records, deposits out of line with disclosed income, repeated deposits without clear dates or sources, unexplained cash movement among family accounts, or a bank's reported figures being incorrect or duplicated.
What notices or communications might you receive?
| Communication | What it generally means | First action |
|---|---|---|
AIS entry without a notice | Transaction was reported | Reconcile and use AIS feedback if incorrect. |
e-Campaign / e-Verification communication | Department seeks information or confirmation | Open the official compliance workflow and respond within the displayed time. |
Section 142(1) / 143(2), where the 1961 Act applies | Formal enquiry or scrutiny for an applicable earlier assessment year | Read the notice, identify the exact issues and prepare an evidence-based response. |
Reassessment-related notice | Possible income-escapement proceedings | Obtain a professional review of jurisdiction, dates and facts before responding. |
Corresponding notice under the 2025 Act | Enquiry or assessment under the new Act for Tax Year 2026–27 onward | Follow the section and instructions actually printed on the notice. |
A Section 143(1) intimation is a processing communication and should not be described as the ordinary notice issued just because a bank reported a cash deposit.
TaxQue guides: Scrutiny notice under Section 143(2), Reassessment notices and General income-tax notice guide.
How to check cash deposit information in AIS
The official AIS is more useful for reported cash transactions than Form 26AS, which primarily shows tax-credit-related information.
Check and reconcile AIS
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Log in
Open the Income Tax e-Filing Portal Official ↗ with your credentials.
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Open AIS
Select the Annual Information Statement option on the dashboard, or e-File → Income Tax Return → View AIS, as available.
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Choose the year
Open the correct financial or tax year and review the SFT information reported by banks.
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Compare
Match reported figures with your statements, cash book, sales records and tax return.
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Give feedback if needed
Use the feedback option against an incorrect AIS entry and retain the acknowledgement; contact the reporting bank if a source correction is needed.
An AIS correction request does not by itself dispose of a separate statutory notice. If you have also received an e-Proceedings communication, answer it through that workflow as directed. The department's AIS FAQ Official ↗ describes the feedback process.
Step-by-step: how to respond to an income tax notice for cash deposits
Step 1: Verify the notice before sharing documents
Open the official e-filing portal directly rather than relying on a link in an SMS or email. Check the taxpayer PAN, tax year, issue date, Document Identification Number (DIN), relevant section, requested records and reply deadline. If the notice appears suspicious, use the portal's authentication facility or official support channels.
Step 2: Download the bank statements and reconcile every cash entry
Prepare the cash deposits for the period covered by the notice, including the bank account and date. Do not stop at the largest transaction—show how the full amount reconciles.
Step 3: Allocate deposits to their actual sources
| Cash source | Useful supporting documents | What the reply should explain |
|---|---|---|
Cash sales | Cash book, sales register, invoices, GST/ITR reconciliation where applicable | That receipts form part of disclosed turnover and are not additional unexplained income. |
Cash withdrawn earlier and redeposited | Withdrawal and deposit bank entries, dated cash-flow record | Timing, intermediate use and whether the cash remained available. |
Sale of a vehicle or personal asset | Sale agreement, receipt, buyer identity and transaction trail | Nature of asset, consideration and applicable tax treatment. |
Gift from a family member | Gift confirmation, relationship, giver's identity and financial capacity | Source and genuineness; family status alone does not prove the source. |
Agricultural receipts | Land records, crop and sale details, buyer or mandi receipts | Nature of operations and the link to the deposited cash. |
Opening cash balance / savings | Prior cash book, earlier bank withdrawals, returns and cash-flow reconciliation | How the cash accumulated and why it remained available. |
Borrowed money | Written loan terms, lender identity and capacity, legal mode-of-receipt compliance | Whether the arrangement was genuine and complied with cash-transaction restrictions. |
Step 4: Make a source-wise reconciliation statement
A clear table is often more persuasive than a long personal explanation. Here is a hypothetical example of ₹12 lakh deposited across the year:
| Source | Amount | Supporting record |
|---|---|---|
Cash business sales already entered in books | ₹6,40,000 | Sales ledger, cash book |
Earlier withdrawal subsequently redeposited | ₹2,50,000 | Bank withdrawal and dated reconciliation |
Vehicle sale proceeds | ₹2,10,000 | Sale agreement, buyer details |
Documented cash gift from a parent | ₹1,00,000 | Gift declaration, evidence of source |
Total cash deposited | ₹12,00,000 | Reconciles to bank entries |
The example does not establish that every listed transaction is tax-exempt or legally compliant. The vehicle sale, gift, business receipts and any cash-acceptance restrictions must be reviewed on their own facts.
Step 5: Write an issue-wise reply and upload evidence
State the factual position, cross-reference each entry to the attached documents, and explain any genuine discrepancy. Label files consistently, for example Annexure-01_Cash-Deposits.pdf, and do not submit edited or fabricated bank records.
Step 6: Submit through the correct official workflow
Use the notice's prescribed response channel: e-Proceedings, Compliance Portal, AIS feedback or another designated service. Save the submission acknowledgement and any transaction or reference ID. If the documents cannot be prepared in time, request an extension before the deadline where the workflow permits one; approval is not automatic.
Step 7: Track the case rather than assuming it is closed
Check for follow-up notices, further document requirements, hearing requests and any final order. Filing a reply is not necessarily the end of the proceeding.
Official workflow: View and Submit Compliance — Income Tax Department Official ↗.
Is there a 78% income tax on unexplained cash deposits in 2026?
This is the most important legal correction to the previous version of this article. The answer depends on the year governed by the relevant Act and whether an amount is actually assessed as unexplained income.
| Governing period | Applicable special provision | Base special rate |
|---|---|---|
FY 2025–26 / AY 2026–27 and earlier years covered by the Income-tax Act, 1961 | Section 115BBE, where applicable | 60%; the commonly quoted 78% includes 25% surcharge on that tax and 4% cess, before any separate penalty. |
Tax Year 2026–27 onward under the Income-tax Act, 2025 (as amended by the Finance Act, 2026) | Section 195, for income covered by Sections 102–106 | 30% base tax, plus applicable surcharge and cess; additional consequences may arise depending on the case. |
The 2026 amendment substituted 30% for 60% in Section 195 with effect from 1 April 2026. It is therefore incorrect to say that all unexplained cash deposits in 2026 are subject to a flat 78% charge. The tax does not apply automatically to the total amount deposited; the department must determine the appropriate legal classification of the amount.
For the new Act, Section 195 (2026 amended text) Official ↗ also disallows deductions and loss set-offs against the specified income. The older framework includes Section 69A Official ↗ and Section 115BBE of the 1961 Act.
Do not automatically file a revised or updated return merely because a notice arrived. Whether correction is permitted depends on the notice, the assessment stage, applicable restrictions and the relevant tax year. Get the specific facts checked before taking an irreversible filing step.
Three common cash-deposit situations, explained
Scenario 1: A shop owner deposits recorded cash turnover
The shop records ₹18 lakh of cash receipts and deposits ₹11 lakh over the year. The deposits are not an extra ₹11 lakh of sales simply because the money reached the bank. The response should reconcile the sales ledger, cash book, GST figures if relevant and bank deposits, and explain where the remaining cash was spent or retained.
Scenario 2: A salaried person redeposits previously withdrawn cash
A person withdrew ₹3 lakh for an anticipated expense that was cancelled and redeposited it later. The withdrawal statement is an important starting point. The explanation becomes stronger if a clear timeline and evidence show the cash was genuinely available to redeposit. An old withdrawal by itself may not establish the source after a long unexplained gap.
Scenario 3: Cash was received from another person
A family member gives cash to help with an expense. Whether the amount is taxable as a gift and whether cash-transaction restrictions apply are separate questions. Keep evidence of relationship, donor capacity, actual transfer and any applicable exception. Do not assume that calling an amount a “family gift” resolves every concern.
Checklist before sending your cash-deposit notice reply
- ○ Correct taxpayer, tax year, section, DIN and deadline verified.
- ○ All relevant bank and post-office accounts considered.
- ○ Deposit totals reconciled to bank statements and AIS entries.
- ○ Source assigned to every material deposit.
- ○ Supporting documents are genuine, readable and dated.
- ○ Business receipts reconcile with books and tax returns where applicable.
- ○ Any cash receipt, loan or gift reviewed under the applicable legal restrictions.
- ○ Reply and annexures checked for internal consistency.
- ○ Response submitted through the specified portal, with acknowledgement retained.
- ○ Follow-up communications monitored until resolution.
How TaxQue can help with a cash-deposit notice
A convincing reply starts with facts, not a template. If you have several bank accounts, business cash receipts, past withdrawals or family transfers, the difficult part is tracing the flow of funds and matching each explanation to the law governing that period.
TaxQue can assist with document review, reconciliation and preparation of a structured response to an income-tax notice, subject to the service scope agreed with you. See income tax notice resolution or read the income tax notice guide.
Get help with an income-tax notice
Final takeaway
If your bank reports ₹10 lakh in cash deposits, there is no reason to assume that the entire amount is taxable or that a notice is inevitable. What matters is whether the source is legitimate, whether its tax treatment is correct and whether you can substantiate it.
The 2026 rules also changed the PAN and information-reporting details, while the Finance Act, 2026 materially changed the special rate for covered unexplained income under the new Act. Before replying to a notice, identify the correct tax year, read the exact provision cited, and prepare a source-wise reconciliation that a reviewer can follow.
Official sources used
- Income-tax Rules, 2026 — Rule 237 (SFT reporting) Official ↗
- Income-tax Rules, 2026 — Rule 159 (PAN for transactions) Official ↗
- Income-tax Act, 2025 — Section 186 (cash receipt restrictions) Official ↗
- Income-tax Act, 2025 — Section 451 (related penalty) Official ↗
- Income-tax Act, 2025 — Section 195 as amended in 2026 Official ↗
- Income Tax Department — AIS FAQs Official ↗
- Income Tax Department — Compliance Portal guidance Official ↗
Last reviewed: 18 October 2026. General educational information, not a substitute for examination of a particular notice or transaction.
