Why your bank deposits, withdrawals, high-value transactions can be under Tax Dept’s lens

Frequent or high-value transactions in savings accounts are drawing closer attention from tax authorities as the Income-tax Department ramps up data-driven monitoring under stricter compliance rules. According to CA (Dr.) Suresh Surana,  this heightened scrutiny stems from “enhanced reporting requirements under the Income-tax Act, 1961, and the increasing sophistication of data analytics tools used by the tax department.”

Dr. Surana explained that, under Rule 114E of the Income-tax Rules, 1962, read with Section 285BA of the IT Act, banks and financial institutions are obligated to file Statements of Financial Transactions (SFT) for high-value activities. “These statements are automatically reported to the Central Board of Direct Taxes (CBDT) and appear in a taxpayer’s Annual Information Statement (AIS) and Form 26AS,” he noted.

“As per CBDT Notification No. 95/2015 dated December 30, 2015, banks must report cash deposits or withdrawals aggregating to Rs 10 lakh or more in a financial year from one or more savings accounts,” Dr. Surana said. Other reportable transactions include fixed deposits above Rs 10 lakh, credit card payments exceeding Rs 1 lakh (cash) or Rs 10 lakh (non-cash), and property transactions worth ₹30 lakh or more, he added.

Unusual patterns

Dr. Surana emphasized that frequent or high-value deposits inconsistent with a taxpayer’s declared income profile may automatically trigger alerts. “If a savings account reflects unusually large or fragmented cash transactions designed to stay below the statutory threshold, the system can flag it as suspicious,” he said.

“In such cases, the Income-tax Department may issue notices under Section 133(6) or Section 142(1) to verify the source and genuineness of funds,” he explained. “Taxpayers should maintain supporting records such as deposit slips, gift deeds, or sale documents and ensure all major inflows align with the income disclosed in their returns.”

Foreign currency transactions

Dr. Surana pointed out that foreign currency-related activities are another area attracting greater scrutiny. “Transactions involving overseas investments, foreign property purchases, or large remittances that do not align with declared income can raise red flags,” he said.

He added that “foreign travel expenses or credit card spends abroad that exceed one’s known financial capacity, unexplained deposits in foreign currency accounts, or remittances beyond FEMA limits are often examined closely under anti-money laundering and FATCA/CRS frameworks.”

Taxpayers, he advised, should ensure that “all foreign income, assets, and remittances are properly disclosed in the income-tax return and backed by FEMA-compliant documentation.”

Large cash withdrawals and property deals

“Even large or irregular cash withdrawals may come under the scanner,” Dr. Surana said. “Banks and post offices must report aggregate withdrawals or deposits of Rs 10 lakh or more in savings accounts in a financial year, and Rs 50 lakh or more for current accounts.”

Further, under Section 194N, if total cash withdrawals exceed Rs 1 crore in a financial year, or Rs 20 lakh for non-filers, Tax Deducted at Source (TDS) applies. “Repeated high-value withdrawals can invite verification to ensure they are linked to legitimate business or personal needs,” he noted.

Similarly, he reiterated that property transactions worth Rs 30 lakh or above are mandatorily reported through SFT filings and cross-checked with taxpayer data.

Matching data

To avoid unnecessary scrutiny, Dr. Surana advised taxpayers to regularly review their AIS and Form 26AS. “All incomes, TDS credits, property transactions, and investment details appearing in these statements must reconcile with your personal records and income-tax return,” he said.

Where discrepancies appear, taxpayers can “submit online feedback or correction requests through the AIS utility, supported by documentation.” He stressed that maintaining consistent records — such as sale deeds, bank statements, or Form 16s — helps prevent mismatches that might trigger automated notices.

Key takeaway for taxpayers

“The key takeaway is clear — transparency and documentation are critical,” said Dr. Surana. “With the Income-tax Department increasingly using AI-driven analytics and third-party data from banks, mutual funds, and registrars, even minor inconsistencies between reported income and actual transactions can invite scrutiny.”

He added, “Taxpayers should ensure that all major deposits, withdrawals, investments, and foreign transactions are fully supported by verifiable records and correctly reported in returns. Proactive reconciliation and compliance are the best safeguards against unwanted tax notices.”