It’s important for Indian taxpayers to understand that the Income Tax Department looks into people’s finances and transaction history concerning their bank accounts—especially significant ones. It’s no different for savings accounts. If someone’s account has significant deposits and cash withdrawals, it may result in scrutiny or, in the worst case, a notice from the account holders bank. Indian Banks now days have to report certain types of transactions to a bank’s operator following statement of Financial transactions (SFT) in compliance, with section 285BA of the Income tax act.Most banks, and especially private ones, now days have a policy of automatically blocking savings accounts for excessive deposits. For instance, for cash deposits surpassing 10 Lakh in a year, one can receive up to 10 Lakh in an account a bank is bound to report it. This is the case no matter if the money is put into one account, or if it is in multiple accounts. The same applies for current accounts, though, the reporting threshold is much higher.Use of new-age technology and analytics by the Income Tax Department helps in comparing the revenue streams of taxpayers and their income. If there is a difference between the income submitted by the taxpayer and the nature or the volume of the bank deposits, then there is a possibility that the taxpayer may face scrutiny which may also include a fund source clarification. While the existence of these boundaries will not result in the taxpayer being labeled as a tax evader, it is definitely a reason why the tax authorities will be closely monitoring the taxpayer.In order to prevent complications, it is better to keep precise information and be prepared to explain the source for any significant cash deposits. Annual Information Statement (AIS) and Form 26AS have to be monitored periodically as these documents may contain information pertaining to the transactions done by the taxpayer's account with certain financial institutions. If there is a notice from the authorities, it is important that the taxpayer provide the notice with the appropriate supporting documents that will justify the transactions made as and when they arise. Tax advisors will also be helpful in navigating these circumstances.
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