How Banks and Institutions Report Your Transactions to the Income Tax Department: SFT, Cash Thresholds, and What It Means for You

You might assume that the Income Tax Department only learns about your income when you file your ITR. That assumption is dangerously wrong.

Every year, banks, mutual fund houses, sub-registrars, credit card companies, and even your stock broker are required by law to report specific financial transactions directly to the Income Tax Department. These reports — known as Statements of Financial Transactions (SFT) — are compiled, matched against your PAN, and made available to you (and to the tax department) through your Annual Information Statement (AIS).

If you earn income but do not report it in your ITR — and a bank or institution has already reported the underlying transaction — you will almost certainly receive a notice. Understanding what gets reported and at what threshold is the first step toward filing accurately and avoiding unnecessary trouble.

What Is the Statement of Financial Transactions (SFT)?

The Statement of Financial Transactions replaced the earlier Annual Information Return (AIR) system in 2016. Under Section 285BA of the Income Tax Act, read with Rule 114E, certain "specified persons" — banks, mutual fund houses, registrars, NBFCs, companies issuing bonds, post offices, and others — must file an SFT with the Income Tax Department for transactions that cross prescribed thresholds during a financial year.

The IT department aggregates all SFT data filed by various institutions, links each transaction to the relevant PAN, and populates your AIS accordingly. This is why your AIS often shows bank interest, mutual fund purchases, property registrations, and other transactions that you may not have reported yet — the institutions already did.

Transactions That Get Reported and Their Thresholds

Here is a comprehensive list of the key transactions reported under SFT rules for FY 2025-26:

Cash Transactions

What this means for you: If you deposit Rs 10 lakh or more in cash across all your savings accounts at a bank during the year, that bank will report it. This includes multiple smaller deposits that add up to the threshold — you cannot split deposits across months to stay under the radar. Each bank reports independently, but the IT department aggregates across all banks linked to your PAN.

Property Transactions

Property registrations are automatically reported. This is why selling a property and not declaring the capital gain in your ITR is one of the fastest ways to receive an income tax notice. The IT department already knows about the transaction before you file.

Investments and Securities

Even if you invest through SIPs and each instalment is small, your total annual investment in a mutual fund scheme is aggregated. Twelve monthly SIPs of Rs 85,000 each add up to Rs 10,20,000 — and that crosses the reporting threshold.

Credit Card and Foreign Exchange

The Rs 1 lakh threshold for cash payment against a credit card bill is notably low. If you routinely pay your credit card bill in cash rather than through bank transfer, the department will flag it — because large cash payments suggest income that may not be flowing through the banking system.

Other Reportable Transactions

Notice that mutual fund redemptions are reported at all amounts — there is no minimum threshold. Every time you redeem mutual fund units, the transaction is reported.

How This Data Reaches Your AIS

The lifecycle of a reported transaction looks like this:

1. You make a transaction (say, a Rs 12 lakh FD)
2. The bank files an SFT with the Income Tax Department, typically within 30 days of the end of the financial year
3. The IT department processes the SFT, matches it to your PAN, and updates your Annual Information Statement
4. When you log in to the income tax portal and view your AIS or TIS, you can see the transaction listed under the relevant category

Your AIS is essentially a mirror of everything that has been reported about your finances. If a transaction appears in your AIS but not in your ITR, the IT department's automated systems will flag the mismatch — and that often leads to a notice under Section 143(1) or a demand for clarification.

What Happens When You Do Not Report Matching Income

The IT department's Project Insight system uses data analytics to cross-reference SFT data, TDS returns, property registrations, and your filed ITR. When discrepancies are found, the system can trigger:

Section 143(1) Intimation: An automated adjustment notice where the department adds unreported income to your computation and sends you a revised tax demand with interest. You receive this without any human officer reviewing your case — it is entirely system-generated.

Section 148 Notice: If the unreported amount is significant, the department may issue a notice to reopen your assessment. For AY 2026-27, reassessment can go back up to three years from the end of the assessment year (or up to ten years in cases involving undisclosed income exceeding Rs 50 lakh).

Penalty under Section 270A: If the department determines that you underreported income, you face a penalty of 50% of the tax payable on the unreported income. If it is classified as misreporting (deliberate concealment), the penalty jumps to 200%.

Common Scenarios Where People Get Caught

Scenario 1: Unreported FD Interest

Rajesh has FDs across three banks earning total interest of Rs 2,40,000 in FY 2025-26. His employer deducted full tax on his salary, and he assumes he does not need to file or report anything extra. But all three banks have filed TDS returns and SFTs. The IT department adds the interest to his income and sends a demand notice for the additional tax plus interest under Section 234A/B/C.

What he should have done: Report all bank interest income in his ITR, even if TDS has been deducted. TDS on FDs is typically only 10% — if his slab rate is 20% or 30%, there is additional tax to pay.

Scenario 2: Property Sale Without Capital Gains Reporting

Priya sold an inherited flat for Rs 85 lakh. She used the proceeds to buy another flat under Section 54 and assumed no tax was due. She did not file ITR-2 or claim the exemption formally. The sub-registrar reported both the sale (Rs 85 lakh) and her new purchase. The IT department sends a notice asking her to explain the capital gain.

What she should have done: File ITR-2, report the sale in Schedule CG, calculate the capital gain, and formally claim the Section 54 exemption. The exemption is real, but you must claim it in your return — it is not automatic.

Scenario 3: Large Cash Deposits from Legitimate Sources

Suresh runs a small retail business and deposits Rs 18 lakh in cash into his savings account over the year. His income is legitimately from business, but he files ITR-1 (which does not accommodate business income) and declares only Rs 6 lakh. The bank reports the cash deposits. The IT department flags the mismatch between reported income and cash inflows.

What he should have done: File the appropriate ITR form (ITR-3 or ITR-4 under presumptive taxation) and declare his full business income.

How to Protect Yourself: A Practical Checklist

Before filing your ITR:

1. Download your AIS from the income tax portal (incometax.gov.in → AIS tab) and review every reported transaction
2. Cross-check bank interest across all savings accounts and FDs — do not rely only on Form 16
3. Verify mutual fund transactions against your consolidated account statement from CAMS or KFintech
4. Check property transactions — if you bought or sold property during the year, confirm it appears correctly
5. Review credit card spend to ensure any cash payments are explainable

If you find errors in your AIS:

Sometimes institutions report incorrect amounts — wrong interest figures, duplicate entries, or transactions attributed to the wrong PAN. You can submit AIS feedback directly on the income tax portal to flag discrepancies. Always file feedback before filing your ITR so that the corrected data is reflected.

If you have already filed with missing income:

You can file a revised return under Section 139(5) before 31 December 2026 (for AY 2026-27) to include the missing income. Filing a revised return before the department notices the discrepancy avoids penalties — you will only owe the additional tax and interest.

The Takeaway

The era of unreported income is effectively over. Between SFT reporting, TDS tracking, and the AIS system, the Income Tax Department has a near-complete picture of your financial transactions — often before you even start filling out your ITR. The smartest approach is not to wonder whether the department will find out, but to download your AIS, match every transaction to your return, and file accurately. 49Tax's AI-powered filing automatically cross-references your AIS data with your income sources to flag mismatches before you submit, helping you avoid notices before they happen.

If your AIS shows income you have not reported, the time to fix it is now — not after the notice arrives.