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Income Tax Department Scrutiny
If you deposit a total of ₹10 lakh or more in cash across all your savings accounts in a financial year, the bank reports this to the Income Tax Department. This isn't illegal, but you may need to prove the source of the money. Therefore, if you deposited money from the sale of a property, a gift, or old savings, keep proof of this, such as receipts or deeds.

If you pay your credit card bill in cash of more than ₹1 lakh or a total of ₹10 lakh (online or by check), banks and card companies send this data to the tax department. This allows the tax department to compare your expenses and declared income. If your expenses appear to be significantly higher than your income, a notice may be issued.

If you withdraw cash frequently or unusually large amounts, and your declared income doesn't match, this may also raise suspicion. Be sure to keep records of such withdrawals, such as business payments or purchase receipts.

If you buy or sell a property worth ₹30 lakh or more, the Sub-Registrar automatically sends the information to the Income Tax Department. The department then matches the data with the income tax returns of both the buyer and seller to determine where the money came from.

If an account that was closed or inactive for a long time suddenly shows large transactions, the bank may consider it "unusual activity." In such cases, you should have a proper explanation and documentation ready, such as whether the account was reopened to start a business or if an inheritance was deposited.

If you spend or receive ₹10 lakh or more in foreign exchange in a financial year (e.g., through international trips, forex cards, or international credit card transactions), authorized dealers and money changers report this to the department. If your foreign expenses are disproportionately high relative to your income, the likelihood of an investigation increases.

If the interest earned on your savings account doesn't match the interest shown in Form 26AS or AIS, it can also lead to an income tax notice. Therefore, accurately report the interest earned on all bank accounts in your ITR every year.

Banks, post offices, mutual funds, and NBFCs all submit information about your interest, dividends, and capital gains to the department. If there's a discrepancy between your Annual Information Statement (AIS) and ITR, the system automatically sends an alert for verification. Even if your savings account interest is less than ₹10,000, it's still important to report.

Many people maintain multiple savings accounts in different banks, but don't include the interest earned on each account in their ITR. This is a common mistake, and the tax department's automated systems quickly catch it. Therefore, report the interest earned on each account together.

During festivals, people often shop online using their friends' or relatives' cards to avail discounts and then return the money later in cash. This can create confusion in the tax system. If the cash transaction is large or exceeds the reporting threshold, it may be captured in the Statement of Financial Transactions (SFT), requiring both parties to provide an explanation.

In such a situation, taxpayers should regularly check their Annual Information Statement (AIS) on the Income Tax Portal. Ensure all entries related to interest, investments, property, or forex transactions are accurately matched with those in the ITR. If your transactions are valid and the documentation is correct, there's no need to worry.

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