Income Tax Watch on Savings Account: 10 Costly Mistakes That Can Trigger a Notice

In today’s digital banking era, managing your savings account responsibly is more crucial than ever. The Income Tax Department keeps a close watch on high-value transactions, sudden fund inflows, and unexplained cash deposits. Even a small mismatch or unreported detail can lead to a tax notice or scrutiny. Here are 10 common mistakes that can put you on the tax department’s radar — and how to avoid them.

1. Depositing More Than ₹10 Lakh in a Year

If you deposit over ₹10 lakh in your savings account during a financial year, the Income Tax Department (ITD) is immediately alerted through your bank’s report. Even if the funds are legitimate, you must keep proper documentation, receipts, and income proofs ready to justify the source.

2. Making Large Credit Card Payments

Paying your credit card bill in cash above ₹1 lakh, or making online or cheque payments exceeding ₹10 lakh in a year, can attract scrutiny. The ITD uses these details to track spending patterns and verify whether your income matches your lifestyle.

3. Large Withdrawals Not Matching Declared Income

If you withdraw a large amount from your savings account that does not align with your declared income, the department may initiate a scrutiny or inquiry. Always ensure that your financial records, salary slips, and ITR filings support such transactions.

4. Property Deals Above ₹30 Lakh

Transactions involving property worth ₹30 lakh or more are closely monitored by tax authorities. The stamp duty records, buyer-seller details, and income proofs are checked to ensure transparency and prevent tax evasion.

5. Sudden Activity in Dormant Accounts

If a savings account has been inactive for a long period and suddenly receives or sends a large sum, it can raise red flags. The tax department views this as suspicious and may issue a verification notice to confirm the source of funds.

6. Foreign Transactions Over ₹10 Lakh

If you conduct foreign remittances, transfers, or overseas expenses exceeding ₹10 lakh in a year, the Income Tax Department may send a compliance notice. All foreign dealings must be backed by valid documents and declared in your ITR under the Foreign Asset section, if applicable.

7. Mismatch Between Declared and Actual Bank Interest

A common trigger for notices is when the interest income you report in your ITR does not match the details available with your bank. The ITD cross-verifies your returns with bank records using Form 26AS and the Annual Information Statement (AIS). Any discrepancy can lead to a notice.

8. Not Reporting Interest from Multiple Accounts

Many people have multiple savings accounts in different banks and often miss reporting the total interest earned from all of them. The law requires you to disclose combined interest income across all accounts while filing ITR. Failing to do so can invite penalties or an IT notice.

9. Ignoring Interest or Dividend from Other Institutions

Interest or dividends earned from post offices, NBFCs, or mutual funds must also be included in your taxable income. If these are missing in your return but appear in the AIS, the department can issue a transaction-related notice for clarification.

10. Inconsistent or Missing Documentation

If you fail to maintain receipts, proofs, or explanations for high-value transactions — whether income, deposits, or withdrawals — you could face tax scrutiny. Always keep PAN-linked records updated and respond promptly to any notice under Sections 133(6), 142(1), or 143(2) of the Income Tax Act.

Key Takeaway

The Income Tax Department has advanced AI-based monitoring systems that automatically track high-value transactions from banks, credit cards, property registries, and investment platforms. To stay compliant:

• Keep PAN and Aadhaar linked to all financial accounts.

• Declare all sources of income, even small interest earnings.

• Avoid large cash transactions and maintain digital records.

• Reconcile your ITR details with Form 26AS and AIS before filing.

By staying transparent and organized, you can avoid unwanted scrutiny and ensure your savings account remains a safe and compliant part of your financial portfolio.