Cash Deposit Limits and SFT Reporting: Avoiding Notices

Short answer: There is no legal limit on how much cash you can deposit into your bank account. However, banks are required to report cash deposits aggregating to ₹10 lakh or more in a financial year in a savings account (or ₹50 lakh in a current account) to the Income Tax Department. This is done through a Statement of Financial Transactions (SFT). If this deposit does not match your declared income, it can trigger a tax notice.

What is the official cash deposit limit in India?

There is no law that sets a 'limit' on the amount of legitimate cash you can deposit in your bank account, but there are crucial reporting thresholds. Banks and financial institutions are mandated by law to report high-value transactions to the tax authorities. The most well-known threshold is ₹10 lakh for cash deposits in a savings account per financial year. This is not a prohibition but a trigger for reporting. Separately, Section 269ST of the Income-tax Act, 1961, prohibits receiving ₹2 lakh or more in cash from a person in a single day or for a single transaction.

What is a Statement of Financial Transactions (SFT)?

An SFT is a report of specified high-value financial transactions that designated entities like banks, post offices, and property registrars must file with the Income Tax Department. Mandated under Section 285BA of the Income-tax Act, its purpose is to create a financial trail and discourage tax evasion. This information is automatically captured and reflected in your Annual Information Statement (AIS), which you can access on the income tax portal. The tax department's systems then compare the data in your AIS with the income you declare in your ITR. You can learn more about how this data is presented in our guide on Form 26AS vs AIS vs TIS.

Which transactions are reported under SFT?

A wide range of transactions beyond just cash deposits are reported to the tax department to provide a comprehensive financial profile of a taxpayer. Below is a table detailing some of the key transactions and their reporting thresholds under Rule 114E of the Income-tax Rules.

Transaction Type	Reporting Threshold (Per Financial Year)	Reported By
Cash deposits in one or more savings accounts	Aggregating to ₹10 lakh or more	Bank or Post Office
Cash deposits in one or more current accounts	Aggregating to ₹50 lakh or more	Bank
Time deposits (Fixed Deposits)	Aggregating to ₹10 lakh or more (excluding renewals)	Bank or Post Office
Credit card bill payments in cash	Aggregating to ₹1 lakh or more	Bank or Card Issuer
Purchase of shares, debentures, or bonds	Aggregating to ₹10 lakh or more	Company or Financial Institution
Purchase of mutual fund units	Aggregating to ₹10 lakh or more	Mutual Fund Trustee/House
Purchase or sale of immovable property	Transaction value or circle rate value of ₹30 lakh or more	Registrar or Sub-Registrar
Receipt of cash payment for goods/services (not works contract)	Exceeding ₹2 lakh per transaction	Any person liable for tax audit

Can I deposit more than ₹10 lakh in cash if it's from a legitimate source?

Yes, you can absolutely deposit more than ₹10 lakh in cash, provided you have a legitimate source for the funds and can furnish proof if asked. The key is transparency. The source of funds must be explainable and consistent with your financial history and income declared in your Income Tax Return (ITR). For example, if you sell a property and receive a portion in cash, you must report the capital gains on that sale in your ITR. The deposit will be flagged via SFT, but your ITR provides the necessary explanation. Always maintain documentation like sale deeds, gift deeds from specified relatives, or bank withdrawal records to substantiate the source of cash. Our guide on how to e-file your ITR online can help you ensure your return is filed correctly.

What happens if my cash deposits are flagged?

The Income Tax Department's automated systems will cross-reference the high-value deposit information from the SFT with your filed ITR. If you have not filed an ITR, or if the deposit amount seems disproportionate to the income you have declared, a compliance alert or a formal notice may be issued. You might receive a notice under Section 133(6) asking you to explain the source of the funds, or your case could be selected for scrutiny assessment. Failing to provide a satisfactory explanation can lead to the unexplained cash being treated as your income and taxed at a very high rate under Section 115BBE of the Income-tax Act.

Worked example

Let's consider Mrs. Priya, a freelance designer in Bengaluru. In FY 2025-26, she received a ₹12 lakh inheritance in cash from her mother's will. She also sold some old family jewellery for ₹3 lakh in cash to a local jeweller.

• Transaction 1: She deposits the ₹12 lakh inheritance into her HDFC Bank savings account in October 2025.
• Transaction 2: She deposits the ₹3 lakh from the jewellery sale into the same account in November 2025.

Step-by-step analysis:

1. SFT Reporting: Her total cash deposit for the year is ₹15 lakh. Since this is above the ₹10 lakh threshold, HDFC Bank will report this aggregate amount to the Income Tax Department via an SFT.
2. AIS Update: This ₹15 lakh deposit will appear in Mrs. Priya's Annual Information Statement (AIS) for AY 2026-27.
3. ITR Filing: When Mrs. Priya files her ITR, she must account for these funds. The ₹12 lakh inheritance from a relative (mother) is exempt from tax under Section 56(2)(x). She should declare this under the 'Exempt Income' schedule in her ITR. The ₹3 lakh from the sale of jewellery is a capital gain, which she must calculate and pay tax on. Let's assume the indexed cost of the jewellery was ₹1 lakh. Her long-term capital gain is ₹2 lakh, and she would pay tax on this (e.g., at 20% plus cess).
4. Compliance: By correctly reporting both the exempt inheritance and the taxable capital gain, Mrs. Priya has created a clear record that explains the source of her ₹15 lakh cash deposit. If she receives a notice, she can provide her mother's will and the jewellery sale receipt as documentary proof.

Common mistakes

1. Ignoring AIS: Failing to check your Annual Information Statement (AIS) before filing your ITR. This leads to mismatches between what the department knows and what you declare.
2. Splitting Deposits: Breaking a large cash sum (e.g., ₹15 lakh) into multiple smaller deposits (e.g., three deposits of ₹5 lakh) in the same or different bank branches. Banks are required to aggregate all cash deposits linked to your PAN, so this does not avoid reporting.
3. Violating Section 269ST: Accepting a cash payment of ₹2 lakh or more for a single transaction. For instance, a small business owner accepting ₹2.5 lakh in cash for a single invoice is violating this provision and can be penalised 100% of the amount received.
4. No Documentation: Depositing cash from legitimate sources like a loan from a friend, sale of personal assets, or cash withdrawals from another account, but failing to keep any proof. A simple signed voucher or bank statement can be crucial.
5. Casual Gifts: Accepting cash gifts over ₹50,000 from non-relatives and not declaring it as 'Income from Other Sources'. Such gifts are fully taxable. Check our guide on gift tax in India.

How SP & SC helps

Navigating tax compliance, especially with high-value transactions, requires careful planning and accurate reporting. At SP & SC, our team of Chartered Accountants provides expert tax consultation to help you structure your transactions compliantly. We assist with everything from ITR filing that correctly reflects your financial activities, to preparing robust, evidence-backed responses to income tax notices. We ensure your financial records are clean, helping you avoid the stress and high penalties associated with unexplained cash deposits.

Frequently asked questions

H3: Is there a limit on cash withdrawals from a bank?

There is no legal limit on how much cash you can withdraw. However, for tax purposes, Section 194N of the Income-tax Act mandates TDS (Tax Deducted at Source) at 2% on cash withdrawals exceeding ₹1 crore in a financial year from a bank or post office. For non-ITR filers, this threshold is ₹20 lakh.

H3: Do I need to report cash gifts in my ITR?

Gifts from specified relatives (like parents, spouse, siblings) are exempt from tax, regardless of the amount. However, if you receive cash gifts aggregating to more than ₹50,000 in a financial year from non-relatives, the entire amount is taxable and must be reported as 'Income from Other Sources' in your ITR.

H3: What is the penalty for not explaining a cash deposit?

If you cannot provide a satisfactory explanation for a cash deposit, the amount is treated as unexplained income under Section 68 or 69A of the Income-tax Act. This income is then taxed at a flat rate of 60%, plus a 25% surcharge and 4% cess, leading to an effective tax rate of 78%. This is a severe penalty, highlighting the importance of proper documentation.

H3: Can a salaried person deposit ₹12 lakh cash from past savings?

Yes, but you must be prepared to prove it. The tax officer may ask you to demonstrate how you accumulated these savings over the years from your post-tax salary. You would need to furnish past bank statements showing withdrawals or a pattern of saving that justifies the current deposit. Simply stating it is 'past savings' is often not enough.

H3: Are cash deposits made by a housewife scrutinised?

Yes. The source of funds is key, regardless of who makes the deposit. If a housewife deposits a large sum of cash without having an independent source of income, the tax department may question its origin. If the cash belongs to her husband or another family member, it may be clubbed with their income.

Get a fixed-fee quote

If you have received an income tax notice regarding a cash deposit or need guidance on managing your financial transactions compliantly, don't wait. Share your documents with us for a confidential review, and we will provide a written fixed-fee quote for our services. We handle all aspects of tax compliance and litigation, from initial consultation to final resolution. You can Contact SP & SC or WhatsApp us at +91 90356 74566 for end-to-end assistance.