Depositing large cash amount in your bank account? It may trigger a tax notice — Here's how to avoid

Making large cash deposits in you bank account can raise eyebrows and attract the attention of the Income Tax Department, and a recent case is the proof of that.

The Income Tax Appellate Tribunal (ITAT) in Delhi has in a significant ruling quashed a six-year-old case pertaining to a large bank transaction that came under the scrutiny of the tax department and turned into a full-blown tax battle.

The trouble began when a taxpayer, one Mr. Kumar, deposited an amount of ₹8.68 lakh in his bank account and received an income tax notice. Initially, the taxman regarded the case as a simple case of “limited scrutiny” — an assessment meant to only verify the source of the cash deposit.

However, the Assessing Officer in the case decided to take the case up a notch during processing and initiated proceedings under Section 44AD of the Income Tax Act, treating it as “presumptive business income”. This section treats the money in question as business profits.

Kumar took the matter to the Commissioner of Income Tax (Appeals) or CIT(A), but his case was dismissed. Refusing to give up, the taxpayer approached the approached the ITAT, and on September 22, 2025, he won at last.

The tribunal noted that the original scrutiny came under the purview of Section 143(2) of the Act and was solely limited to the cash deposits in the bank account. However, the Assessing Officer went beyond the permitted limit and treated the deposit as undisclosed business profit without getting approval from the CIT.

The ITAT ruled that such an expansion was not legally permissible.

However, the case brings into light the repercussions of depositing large cash amounts into your bank account.

Here is how you can avoid tax notices on a bank deposit.

Are bank deposits taxable?

Cash deposits in your bank account are generally not taxable, but such transactions are among the highest-flagged transactions as they often implicate unaccounted funds being infused into the formal financial system.

Banks and cooperative banks are required to report to the Income Tax Department if someone deposits ₹10 Lakh or more during a single financial year.

This limited is applicable cumulatively to all the accounts of the taxpayer linked with PAN.

When am I likely to receive a tax notice for bank deposit?

If you deposit an unusually high amount of cash in your bank account, you are likely to receive a notice from the income tax department. The tax department is entitled to scrutinse the source of the deposit and you will have to write a reply to the taxman explaining the transaction.

What to do to avoid tax notice on bank deposits?

If you want to avoid tax notice on bank deposits, it is best to stay within the permissible limit. Even if you deposit a large amount of money, you must keep documents ready to explain the transaction so that you can easily answer the taxman if you receive a notice.

In case you receive a notice, you must be able to explain the transaction to avoid legal trouble.