Your savings account is the heart of your financial life. Salary credits, online payments, rent transfers, and bill settlements — everything flows through it. But what if some of these everyday transactions silently draw the attention of the Income Tax Department (ITD)?
Gone are the days when only big business owners or high-income individuals were under the tax scanner. Today, every ordinary bank account holder can be tracked under the Income Tax Department’s digital monitoring system.
The government’s upgraded system — known as the Statement of Financial Transaction (SFT) — allows financial institutions to report high-value or unusual transactions. This initiative aims to curb tax evasion, trace unaccounted money, and ensure better compliance.
So, if you’ve made large or frequent transactions this year, your bank details might already be part of this digital watchlist. Let’s understand what kind of transactions can attract scrutiny and how you can stay safe.
The Growing Digital Surveillance
In the last few years, the Income Tax Department has made a massive shift toward data-driven monitoring. Using advanced analytics and artificial intelligence, the department now receives transaction details directly from:
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Banks and cooperative societies
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Post offices
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Mutual fund houses
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Property registration offices
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Credit card companies
Each year, these entities submit an SFT report to the department, listing accounts that have shown large or unusual activity. These records are automatically linked to the taxpayer’s PAN and Aadhaar, allowing the department to detect discrepancies between reported income and financial activity.
Simply put — if your account activity doesn’t match your declared income, it can raise red flags.
1. Depositing Cash Over ₹10 Lakh in a Year
This is one of the most common triggers. If you deposit ₹10 lakh or more in cash into your savings account within a financial year, your bank must report it to the Income Tax Department.
This limit applies to cumulative deposits, not just one-time transactions. For example, depositing ₹2 lakh every month in cash will total ₹24 lakh by year-end — far beyond the reporting threshold.
Even if the money is legitimate (say from property rent or business income), you must report it properly in your Income Tax Return (ITR). Failing to do so can result in a notice asking you to explain the source.
2. Paying Large Credit Card Bills
Your credit card reflects your spending habits — and now, the tax department is watching too.
If you pay ₹1 lakh or more in cash towards credit card bills in a year, or ₹10 lakh or more via online/bank transfer, the bank is required to include this in its SFT report.
The department then compares your total expenditure with your declared annual income. If you earn ₹8 lakh a year but spend ₹15 lakh on your card, it’s an obvious mismatch. Such cases often trigger inquiries about your real income sources.
3. Frequent or Unexplained Large Cash Transactions
Many people withdraw or deposit large sums regularly — for events like weddings, medical expenses, or business needs. While legal, repeated large cash movements without a clear purpose can raise suspicion.
Banks monitor such activity and may flag it as “unusual” or “potentially suspicious.” The department may then ask for clarification — where the money came from and why it was used.
To stay safe, always maintain records — bills, receipts, or declarations — that can justify the source and purpose of the funds.
4. Buying or Selling Property Worth ₹30 Lakh or More
Real estate transactions are a major focus area for the Income Tax Department.
Whenever you buy or sell a property worth ₹30 lakh or more, the registrar automatically reports it to the ITD. Even if you receive or pay part of the amount in cash, the transaction gets flagged.
If a sudden large inflow or outflow appears in your account around the same time, the department may verify whether it’s linked to a property deal and if it’s reflected in your ITR.
Keeping proper sale deeds, payment proofs, and PAN details of both buyer and seller is essential to stay compliant.
5. High-Value Foreign Transactions
In recent years, the department has turned its attention to foreign remittances and forex spending as well.
If you spend more than ₹10 lakh on foreign travel, education, or forex cards during a financial year, your bank must report it.
This rule applies to all international expenses made via debit/credit cards or wire transfers.
The ITD checks whether such spending aligns with your declared income and tax records. Any major mismatch could invite questions about unaccounted sources of funds.
6. Sudden Activity in a Dormant Account
A dormant or inactive bank account that suddenly shows heavy inflow or outflow can attract immediate attention.
For example, if an old account with no activity for two years suddenly receives ₹5 lakh, the bank is likely to report it as an “unusual transaction.”
In such cases, you may be asked to explain the reason for the deposit — was it a gift, inheritance, or old savings? Maintaining a paper trail is crucial.
7. Unreported Interest, Dividend, or Investment Income
Every year, banks and financial institutions report the interest you earn on fixed deposits, savings accounts, or dividends from mutual funds.
If you fail to include this income in your ITR, the department’s system will automatically flag the discrepancy.
The ITD uses a data-matching algorithm to compare financial reports from banks with taxpayers’ filings. Any mismatch, even minor, can trigger an automated notice asking for clarification.
8. Multiple Bank Accounts and Hidden Interest Income
It’s common to maintain multiple bank accounts — one for salary, another for household expenses, and a third for investments. But neglecting to report interest from all accounts can be risky.
Since PAN and Aadhaar are now linked to all bank accounts, the ITD can see your entire financial activity across institutions.
Even small unreported interest amounts can add up and create inconsistencies.
To avoid trouble, consolidate your interest income and report it accurately each year.
9. Deposits from Unexplained or Undeclared Sources
Receiving large sums from unclear sources — “a friend,” “family savings,” or “a gift” — can lead to trouble if not properly documented.
The department may ask for the source and proof of funds. If you can’t substantiate it, the amount may be treated as unexplained income, and you could be taxed up to 60% under the Income Tax Act, Section 115BBE.
Keep copies of loan agreements, gift deeds, or withdrawal proofs to justify such deposits.
10. Allowing Others to Use Your Bank Account
If someone else uses your account to make payments, transfer funds, or receive money, you’re inviting risk.
Such transactions can appear as benami (in someone else’s name) or money-laundering activity to the authorities. The department may question you if the account activity doesn’t match your income pattern or profile.
To stay safe, avoid letting third parties use your account, even temporarily.
How the Income Tax Department Tracks These Transactions
All banks, post offices, and financial institutions must file SFT reports annually, covering:
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Cash deposits and withdrawals above ₹10 lakh
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Property transactions of ₹30 lakh and above
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Credit card payments exceeding ₹10 lakh
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Mutual fund investments above ₹10 lakh
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Foreign remittances over ₹10 lakh
This information is digitally linked to taxpayers’ PAN and Aadhaar numbers. The department then uses artificial intelligence to detect:
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Mismatches between income and expenditure
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Suspicious patterns or sudden spikes in account activity
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Undisclosed investments or assets
These checks are automated, meaning even ordinary individuals can come under the radar if their banking activity looks inconsistent.
How to Keep Your Savings Account Safe from Scrutiny
Being careful and transparent can help you avoid unnecessary tax notices. Follow these practical tips:
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Declare all income sources — including savings interest, FDs, and dividends.
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Maintain supporting documents — for large deposits, loans, or property transactions.
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Avoid frequent large cash transactions, especially without receipts or invoices.
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Don’t use your account for others’ purposes.
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Ensure your spending matches your declared income.
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Report all high-value purchases or investments in your ITR.
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Keep your PAN and Aadhaar details updated with banks to ensure accurate reporting.
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File your ITR on time, even if your income is below the taxable limit, to maintain clean records.
By following these steps, you can ensure complete transparency and minimize the risk of tax inquiries.
What Happens If You’re Flagged?
If the department detects any suspicious or mismatched transaction, you might receive:
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An SMS or email asking you to verify the source of funds
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An income tax notice seeking clarification
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In rare cases, an audit or detailed inquiry
In such situations, don’t panic. Respond truthfully and provide supporting documents. If the funds are legitimate, you’ll have nothing to worry about.
The Bottom Line
The Income Tax Department’s new data-driven system has made financial monitoring smarter and faster. What may seem like ordinary transactions — a property payment, a foreign trip, or large deposits — can now be tracked instantly.
However, this isn’t something to fear. The purpose of the system is not to harass honest taxpayers but to identify unreported or suspicious money movement.
As long as your income is genuine, reported properly, and supported by records, your savings account will remain safe and compliant.
In today’s transparent digital economy, honest reporting and smart record-keeping are the best defenses against unwanted tax scrutiny.
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