Cash Deposits Over ₹10 Lakh: Received an Income Tax Notice? Here’s Exactly What to Do!

If you’ve deposited cash over ₹10 lakh during a financial year, there’s a high chance you may receive a notice from the Income Tax Department. Banks report such deposits directly to the IT department under the Statement of Financial Transactions (SFT) as per Section 285BA of the Income Tax Act, 1961.

Why Did You Receive This Notice?

• Deposits of cash over ₹10 lakh in a savings account trigger mandatory reporting by banks.
• The Income Tax Department cross-verifies these deposits against your declared income in your ITR.
• Any mismatch or suspicion leads to a notice under Section 133(6) or Section 142(1) for clarification.

Sections Under Which Notices Are Sent:

• Section 133(6): IT department seeks information to verify the source of income or transactions.
• Section 142(1): Notice demanding clarification on specific financial transactions during assessment.

How Should You Reply to the Notice?

1. Don’t Panic—Respond Promptly:
   • Ignoring the notice will only complicate matters and may attract penalties.
2. Gather Your Documents:
   • Bank statements reflecting the deposits
   • Proof of source of cash (e.g., property sale deed, business receipts, agricultural income proof, gift deed)
   • Copy of your Income Tax Returns filed for the respective financial year
3. Drafting Your Reply:
   • Mention clearly the notice reference number and assessment year.
   • State the facts regarding the cash deposits concisely.
   • Attach supporting documents clearly numbered.
4. Submit Your Response:
   • Online through your registered account on the Income Tax e-filing portal (www.incometax.gov.in).
   • Or physically submit the reply at your jurisdictional assessing officer’s office.

Consequences of Ignoring the Notice:

• Possible scrutiny assessment under Section 143(3).
• Penalties ranging from ₹10,000 to ₹1 lakh under Section 272A(1)(c) for non-compliance.

Pro Tips:

• Always maintain accurate records of large cash transactions.
• Seek assistance from a Chartered Accountant or tax expert if unsure about responding.

Receiving an IT notice can be unsettling, but transparency and timely responses are your best defense.