Income Tax Dept. Intensifies Scrutiny on Savings Accounts: High-Value Cash Transactions, Interest Mismatches Under Lens

Savings accounts are often seen as low-risk, low-visibility banking instruments. But in the eyes of tax authorities, transactions in these accounts—especially large ones—carry significant informational importance. The Indian tax system, through mechanisms like the Statement of Financial Transactions (SFT) and the Annual Information Statement (AIS), tracks high-value banking activities and uses them to cross-verify disclosures made by taxpayers.

If these reporting systems detect unexplained or mismatched transactions, they can lead to notices, demands, or assessments. Understanding these rules, the thresholds, and your obligations is essential for staying compliant and avoiding unwelcome surprises.

Key Legal and Regulatory Frameworks

Statement of Financial Transactions (SFT) under Section 285BA

• Section 285BA of the Income Tax Act empowers the Central Board of Direct Taxes (CBDT) to mandate “specified persons” (banks, financial institutions, registrars, etc.) to report certain high-value transactions.
• The rules for SFT reporting are prescribed in Rule 114E of the Income Tax Rules, which set out thresholds and aggregation norms. 
• The reporting is done via Form 61A (for most financial institutions) and must be filed electronically by the concerned institution. 
• The deadline for submitting the SFT for a given financial year is 31st May following that year.
• If a reporting entity submits inaccurate SFTs (e.g. deliberately false or misleading), it can face a penalty of ₹5,000 or more, depending on the nature of the inaccuracy. 

What Transactions Are Reported Under SFT?

Under Rule 114E (and allied provisions), the following kinds of transactions are mandatorily reported when they exceed specified thresholds:

These are some of the principal categories. The tax department (via AIS) uses these data points to trace large-scale movements of capital and cross-check them against declared income. 

Aggregation rules:

• All transactions of the same nature across all accounts of the same person are aggregated for checking threshold limits. 
• In joint accounts, the full amount is attributed to each individual for the purpose of threshold checks.

Specific Rules for Savings Account Deposits & Related Limits

Cash Deposit Threshold for Savings Accounts

• If the aggregate cash deposits in a person’s savings (non-current, non-time deposit) accounts exceed ₹10 lakh in a financial year, the bank must report this in the SFT. 
• This reporting makes the transaction visible in the taxpayer’s AIS / Form 26AS records, which the Income Tax Department can use to validate the declared income and source of funds. 
• The exact number “₹10 lakh” is not a “ban” — you are allowed to deposit more — but depositing more increases scrutiny. 

Single-day / PAN / Form 60 / Section 269ST

• Any single cash deposit exceeding ₹50,000 requires you to furnish your PAN; if PAN is not available, you must submit Form 60 or Form 61 as applicable.
• Under Section 269ST, acceptance of ₹2 lakh or more in cash from a person in one day (even if split) is prohibited in many contexts and can attract penalties if citizens or entities violate it. 
• Banks are required to block or report such transactions to ensure compliance. 

Cash Withdrawals, Reporting & TDS

While deposits often get highlighted, large withdrawals are also monitored:

• Withdrawals (or deposits) from current accounts aggregating to ₹50 lakh or more in a financial year must be reported under SFT. 
• There is a (recently introduced) 2% TDS on cash withdrawals exceeding ₹1 crore in a financial year. 
• For individuals who have not filed ITRs for the past three years, the limits for applying TDS on withdrawals become lower (e.g. ₹20 lakh for some cases).

Frequent or large withdrawals — especially unexplained ones — may prompt the tax authority to issue notices to seek justification.

Interest Income, Mismatches & Reporting

The interest you earn on your savings account is taxable under “Income from Other Sources” and must be disclosed in your Income Tax Return (ITR).

Why interest matters

• Banks and financial institutions report the interest credited to your account, and this is reflected in AIS / Form 26AS.
• If the interest amount you report in ITR differs from what shows up in AIS / 26AS, it may raise red flags and lead to scrutiny or adjustment by the tax authority.

Multiple accounts, joint accounts, and dormant accounts

• If you hold multiple bank or savings accounts, you must aggregate and report the interest from all of them in your ITR. You cannot selectively choose only one account (unless one is negligible and exempt by threshold, but better safe than sorry).
• For joint accounts, the share of interest to be attributed to each holder should reflect the actual ownership or agreement. You should report the portion pertaining to you.
• Even if a savings account is dormant or “inactive,” any interest that accrues still counts as income and must be disclosed.

A best practice is to review your AIS before filing the ITR to reconcile what the tax department has been informed (via SFT) with what you plan to declare.

What Happens If You Cross SFT Reporting Thresholds?

Crossing a reporting threshold does not automatically imply wrongdoing — it means your transaction is visible to the tax authorities, and they expect you to explain or justify it if needed. However, several consequences may follow:

1. Notice / Inquiry
   • If the large transaction does not align with your disclosed income or past filing history, the department may issue a notice under sections such as 133(6), 142(1), or initiate scrutiny assessment under section 143(2). 
   • You will be asked to furnish proofs or explanations: source of cash, income records, sale deeds, gift deeds, etc. 
2. Adjustment / Disallowance / Tax Demand
   • If you fail to satisfy explanations, the department may add the amounts as “undisclosed income” and tax them accordingly.
   • Interest, penalty, or surcharge may be applied.
3. Penalties on Non-Reporting Entities
   • Entities (banks, institutions) that fail to file SFT or file incorrect data may incur penalties (e.g. ₹5,000) or higher if the issue is serious. 
   • Their default can also cause data mismatches for taxpayers and potentially lead to avoidable notices.
4. E-Campaign / Voluntary Compliance
   • The Income Tax Department periodically runs e-campaigns wherein taxpayers are asked to explain or rectify mismatches between their ITR disclosures and AIS / SFT data. 

Practical Advice for Taxpayers

Here are steps and safeguards you should take:

1. Monitor AIS / Form 26AS regularly
   • Before filing your ITR, compare what the Income Tax Department’s database shows (via AIS) with your own records.
   • Identify any large transactions (deposits, withdrawals, investments) that are close to or exceed thresholds.
2. Keep documentation for sources
   • If you receive cash as gift, sale proceeds, repayment of loan, etc., preserve documents (gift deed, sale agreement, invoices, ledger entries).
   • Maintain bank statements, cheque copies, receipts, etc.
3. Be prudent in structuring transactions
   • Avoid large, unexplained cash deposits in a lump sum.
   • For needed liquidity transfers, maintain clear trail (cheques, bank transfers, etc.).
   • Use digital modes wherever possible—they leave a verifiable trail.
4. Timely response to notices
   • If a notice arrives for a reported transaction, respond soon with all relevant proofs. Ignoring it worsens the position.
5. When in doubt, disclose proactively
   • For large amounts (e.g. inheritance, property sale proceeds), even if exempt or non-taxable, you may consider making a declaration in your ITR and attaching explanations or notes.
   • Where possible, take tax advice to decide whether to revise returns or proactively disclose additional income to avoid future adjustments.

Read More: How to file the ITR of a deceased person and claim any TDS refund?