10 Common Bank Transactions That Can Draw the Income Tax Department’s Attention
Disclaimer: This blog contains generic information. Ujjivan is not responsible for the accuracy of the information mentioned herein. Ujjivan does not offer any personal finance products or services.
November 03, 2025
Many taxpayers assume that simply filing their returns on time keeps them off the radar of the Income Tax Department. The reality, however, is more complex. With PAN-linking, automated reporting and digital trails, the department now tracks a wide array of financial transactions — not only for high-net-worth individuals, but also for ordinary salaried citizens.
Financial institutions, registrars and other specified entities must report certain transactions under the framework of Section 285BA of the Income‑tax Act, 1961 via the “Statement of Financial Transactions” (Form 61A) or the Annual Information Statement (AIS). As a result, even seemingly routine banking activity can trigger questions if it does not align with your declared income.
In this article, we’ll examine ten common banking transactions that may raise red flags — and we’ll share practical advice on how to manage them responsibly.
How the Income Tax Department Tracks Transactions
The Income Tax Department has evolved from conducting random audits to deploying data-driven profiling. It uses information submitted by banks, registrars, mutual funds and other institutions and matches it against returns filed by taxpayers.
Key tools in this process include:
It’s important to note that you don’t need to be a business owner or millionaire to be flagged. If your transaction pattern deviates significantly from your declared profile, the system may issue a query.
10 Bank Transactions That Often Raise Red Flags
Here are 10 types of banking or financial transactions that commonly trigger reporting — and how you can deal with them smartly. The thresholds quoted here reflect current SFT/monitoring parameters.
1. Large Cash Deposits (₹10 Lakh or More in a Financial Year)
If you deposit ₹10 lakh or more in cash into a non-current account (e.g., savings account) in a single financial year, the bank is required to report it.
Why it matters: Substantial cash deposits raise questions about the source of funds — unreported business income, gifts, or informal transactions.
What to do: Maintain documentation (sale deed, loan repayment receipt, gift deed, etc.). Ensure your declared income supports the volume of cash inflows.
2. High Credit Card Bill Payments
If you pay large amounts on credit cards (for instance via bank transfer) or pay in cash above certain limits, these are also reportable. For example: cash payments to a credit card issuer of ₹1 lakh or more in a year; or non-cash payments of ₹10 lakh or more.
Why it matters: High spending combined with low declared income may suggest undeclared income.
What to do: Keep invoices or proof of purchase; ensure your ITR income reasonably supports your lifestyle.
3. Frequent Large Cash Withdrawals or Deposits
Regular cash movements, say ₹2-3 lakh every month, especially if your declared income is modest, may trigger suspicion even if each transaction is below the SFT threshold.
Why it matters: The system monitors for patterns such as splitting transactions to evade thresholds.
What to do: Prefer traceable channels (bank transfer). If large cash activity is unavoidable, clearly document the reason.
4. Property Purchase or Sale Above ₹30 Lakh
Any property deal (sale or purchase) where the stamp duty value or transaction value is ₹30 lakh or more must be reported under SFT.
Why it matters: Real-estate transactions are prone to unreported cash components and mismatch with declared income.
What to do: Always register property at full value, use traceable modes of payment (cheque/online), and safely retain the sale deed, registration receipt.
5. Dormant or Inactive Accounts Suddenly Showing Big Movements
If an account that has seen little or no activity suddenly begins showing significant deposits or withdrawals, it may attract attention.
Why it matters: It may indicate someone else using your account, or you using it to park money unnoticed.
What to do: If reactivating an account after a gap, notify your bank; keep documentation for one-off inflows such as inheritance, asset sale, etc.
6. Foreign Currency or Overseas Transactions
Transactions involving foreign exchange (purchase, travel, remittance) above certain thresholds are monitored. For instance, forex exchanges or credit card spend in foreign currency aggregating above ₹10 lakh.
Why it matters: Large overseas spend, without corresponding declared income, can prompt inquiry.
What to do: Retain travel tickets, university fee receipts, remittance proof. Ensure these correspond with your declared profile.
7. Interest, Dividend or Capital Gain Income Not Declared
Banks report interest earned on savings, fixed deposits and other instruments, which is reflected in AIS even if you don’t declare it.
Why it matters: A mismatch between reported interest/dividend and your ITR invites questions.
What to do: Before filing ITR, check your AIS/Form 26AS, aggregate all interest/dividend income and include it in your return.
8. Multiple Savings Accounts with Undeclared Income
Having numerous bank accounts isn’t a problem per se — but ignoring small interest incomes across them is risky.
Why it matters: Since all accounts are PAN-linked, the department can aggregate interest income and compare it against your ITR.
What to do: Review statements across all accounts annually; sum up interest incomes and ensure your ITR reflects the total.
9. Transactions on Behalf of Others
If you permit friends or family to use your account (for example, deposits or transfers), you risk being linked to “benami” transactions (i.e., someone hiding money behind another’s name).
Why it matters: Such arrangements can be construed as concealment of income or asset ownership.
What to do: Avoid operating accounts for others unless it is formally documented (loan agreement, power of attorney, etc.). Respect your own financial profile.
10. Sudden Large Transfers or Unexplained Credits
A lump sum credit — say ₹10 lakh — into your account from an unfamiliar source can instantly raise a flag.
Why it matters: The AIS will reflect it, and if your declared income doesn’t match the inflow, a notice may follow.
What to do: Keep records — gift deed, sale accommodation, loan contract — and be ready to explain the source of funds.
How to Stay Compliant and Worry-Free
Penalties and Consequences of Non-Disclosure
The Income Tax Department doesn’t automatically penalise simply because a transaction was flagged — the issue arises when you can’t explain or justify it.
A. Scrutiny Notices
You may receive a notice asking for clarification of certain transactions. Ignoring or replying vaguely can lead to deeper investigation.
B. Penalty for Concealment of Income
If the department concludes deliberate concealment of income, a penalty of 50% to 200% of the tax might be imposed.
C. Interest and Back-dated Tax
Even if the omission isn’t wilful, you may have to pay tax due plus interest for the delay.
D. Prosecution in Extreme Cases
Large undeclared sums or repeated non-compliance can lead to prosecution — though this typically applies to serious tax-evasion rather than minor mistakes.
E. Banking Restrictions or Delays
Unexplained mismatches may irritate banks too, causing delays in loans, property registration or external remittances.
Being proactive with transparency is far safer than reacting to a notice.
Final Thoughts
The Income Tax Department’s monitoring has become smarter and more connected than ever. Data from banks, registrars, mutual funds, and other institutions flows into digital systems where your financial transactions are matched against your declared income. What this means: whether it’s a large cash deposit, an expensive property purchase, or a heavy overseas spend — the digital trail is harder to avoid.
But this is not a cause for fear. The system isn’t built only to penalise genuine taxpayers — it is built to enhance accountability and fair tax compliance. If your money comes from legitimate sources, your tax return is in order and your paperwork is organised, you have nothing to worry about.
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FAQs
1. What is the maximum cash deposit allowed in a savings account without automatic reporting?
You can deposit up to ₹10 lakh in cash in a financial year without mandatory SFT reporting for that category. Deposits above that are required to be reported.
2. Can I receive large gifts in my account?
Yes, you can receive gifts. But if the value exceeds ₹50,000 (and the donor is not a close relative), it may be taxable as “Income from Other Sources” — and you must keep a gift deed or written declaration to support it.
3. Does the Income Tax Department monitor UPI or online transfers?
Individual UPI transactions are not automatically flagged. However, if large inflows or outflows aggregate to reportable amounts (over thresholds) or if they don’t align with your declared income profile, they will reflect in AIS/Form 26AS.
4. I’ve received a notice about high-value transactions. What should I do?
Don’t panic. Log into your e-filing account, check your AIS and pending actions under “Compliance Portal → e-Campaign”, and respond truthfully. Provide supporting documents for legitimate sources of funds.
5. Is withdrawing cash from my own account taxable?
No, withdrawal from your own account is not taxable. But very large or frequent cash withdrawals (e.g., over ₹10 lakh per year) will be reported for monitoring.
6. Can multiple small deposits escape reporting?
No. The reporting entities and the system aggregate across all accounts and transactions of the same nature maintained in your name during the year to check if thresholds are exceeded.
7. Are salary credits in a savings account also monitored?
Yes, they are visible. However, normal salary credits rarely trigger scrutiny unless your declared income is far lower than your inflows or spending pattern.
8. What if I forgot to declare FD or savings interest in my ITR?
You can file a revised return within the same assessment year. Declare the missed income and pay any tax difference to avoid future issues.
9. Do pensioners or senior citizens also face scrutiny?
Yes. While the risk may be lower for routine income, if there are large unexplained transactions in their accounts, the same rules apply. Senior citizens must still declare interest income and check their AIS annually.
10. What’s the best way to stay off the tax radar?
Be consistent, transparent and traceable. Keep digital proof of major inflows, ensure your ITR income aligns with your bank statements and AIS, and maintain proper documentation.
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