Even if you use cash for making bank draft and deposited it in your Demat Account, both broker and the bank will inform about your cash transaction in their respective balance sheets and hence income tax department will send you notice in that case
The income tax department has become quite strict on cash transactions. They are keeping an eye on our deposits and withdrawal in such a way that even if we don't report about the transaction, they would come to know via balance sheets of banks, mutual funds and other institutions with which we have transacted. So, it's better to know one's limitations and remain inside that restriction. So, if someone is planning to invest in bank fixed deposit (FD), mutual fund, equity market or in bonds, there is a limit beyond which cash or digital deposit may attract income tax notice.
Speaking on cash deposit limit in bank fixed deposit Mumbai-based tax and investment expert Balwant Jain said, "If a bank depositor invests ₹10 lakh or above in one's FD account, then the income tax department may send notice to such bank FD account holder. In fact, ₹10 lakh or above deposited digitally is also liable for income tax notice. So, one should know the limit beyond which bank FD deposits either in cash or in digital form will attract income tax notice."
Highlighting the income tax rules on cash deposit in mutual funds, stock markets and bond markets SEBI registered tax and investment expert Jitendra Solaniki said, "In case of cash deposit to the tune of ₹10 lakh or above either in mutual fund, direct stock market or in the bonds, may attract income tax notice. In fact, the deposit of such amount in digital form is also liable for income tax notice."
On bank drafts via cash deposited in the stock market Balwant Jain said, "Even if you use cash for making bank draft and deposited it in your Demat Account, both broker and the bank will inform about your cash transaction in their respective balance sheets and hence income tax department will send you notice in that case too." Jain said that in that case the notice will be more serious than in other cases specified above.