Large or frequent bank deposits can flag mismatches in income profiles: Expert flags what can trigger tax scrutiny

Everyday banking activities—from receiving salaries to paying utility bills—may seem routine for millions of Indians. But these familiar transactions are now drawing unprecedented attention from the Income Tax Department, which has expanded its data-monitoring systems to track even moderate-level financial activity. What was once a compliance burden primarily for high-net-worth individuals and large businesses has now shifted to include ordinary savings account holders, thanks to tighter scrutiny under the Statement of Financial Transactions (SFT) framework.

The SFT is a reporting mechanism that mandates banks, post offices, mutual funds, fintechs, NBFCs, and other institutions to submit details of high-value transactions to the tax department every year by May 31. The objective is clear: curb tax evasion, flag unusual patterns, and ensure that spending and lifestyle indicators align with declared income.

According to CA Niyati Shah, Vertical Head – Personal Tax at 1 Finance, frequent or abnormally large transactions in savings accounts are often flagged automatically. “Such activity can indicate unreported income, business dealings being routed through personal accounts, or even potential money laundering. The Income Tax Department relies heavily on data analytics to detect patterns inconsistent with an individual's declared income profile,” she explained.

Thresholds that trigger scrutiny

Banks must report cash deposits over Rs 10 lakh in a savings account during a financial year. For current accounts, the threshold is Rs 50 lakh. Yet authorities may still question frequent smaller deposits if they appear disproportionate to what an individual earns.

High-value activity spans far beyond deposits. Property deals exceeding Rs 30 lakh, cash investments in shares or mutual funds worth more than Rs 10 lakh, cash payments of Rs 1 lakh or more toward credit card bills, and non-cash credit card payments over Rs 10 lakh all fall squarely within reporting requirements.

Foreign exchange transactions are also monitored closely. Under the Liberalised Remittance Scheme (LRS), remittances above Rs 7 lakh per year attract Tax Collected at Source (TCS) and are automatically tracked to ensure the source of funds is legitimate. Large withdrawals are equally important: cash withdrawals exceeding Rs 1 crore in a year must be reported.

Credit cards, property deals

Credit card payments are a major focus area in the compliance drive. “Credit card payments above Rs 1 lakh in cash or Rs 10 lakh through digital modes are mandatorily reported. These values are then compared with the taxpayer’s ITR to identify lifestyle–income mismatches,” Shah said.

Similarly, property transactions offer another digital trail. Registrars report any deal of Rs 30 lakh or more, while buyers purchasing property worth ₹50 lakh or above must deduct TDS, ensuring both sides of the transaction are on record.

Dormant accounts

Unusual activity in dormant accounts is another red flag. Banks are required to conduct enhanced due diligence if a previously inactive account suddenly receives high-value deposits or transfers. Such behaviour can appear to mask income or facilitate layering activities associated with money laundering.

How taxpayers can stay compliant

The Income Tax Department advises taxpayers to regularly review their Annual Information Statement (AIS) and Form 26AS, which display all third-party-reported transactions. Ensuring that all entries match disclosures in the Income Tax Return helps avoid scrutiny, mismatch notices, or tax demands.

Shah’s key advice is simple: “With the Income Tax Department’s systems now fully data-driven, transparency is the new tax planning. Every major transaction—cash or digital—leaves a footprint.” She emphasises maintaining documentation, avoiding the use of personal accounts for others’ transactions, and keeping financial activity aligned with declared income.

As data analytics-driven compliance becomes the new norm, taxpayers will need to stay vigilant, maintain clean records, and adopt responsible financial practices to stay off the tax radar.