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If India’s Income Tax Department asks about cash deposits, do not assume the notice proves that the deposits are taxable or improper. Read and authenticate the document, identify its tax year, legal section, questions, deadline and required submission route, then reconcile every questioned deposit to truthful records and submit a documented response through the route specified—usually Pending Actions > e-Proceedings on the official e-Filing portal. Keep the filed response and acknowledgement. This guide is India-specific; taxpayers elsewhere must follow their own tax authority’s process.
What to do first when a cash-deposit notice arrives
The notice itself controls your immediate obligations. Online advice cannot replace the document’s wording, the tax year involved, or the law applicable to that year. A cash-deposit communication may be an information request, a compliance communication, an assessment query, a scrutiny notice, a reassessment show-cause notice, or a demand. Each can require a different answer and deadline.
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- Do not treat a notice as a finding of undisclosed income. The Department is asking for an explanation or action; whether any amount is taxable depends on the facts, records, and governing law.
- Do not reply with a bare denial or one unexplained annual total. Connect each questioned deposit to its genuine source and supporting evidence.
- Do not use a deadline from a different kind of notice. The date printed in your document and the applicable statutory provision govern.
Step 1: Authenticate the communication and read every page
Use the official e-Filing account
Sign in by entering the official Income Tax e-Filing address yourself. Avoid signing in through an unexpected email or text-message link. After signing in, open Pending Actions > e-Proceedings. Select the relevant proceeding and use View Notice to read or download the document. The Department’s e-Proceedings manual identifies an active account, PAN and the notice as prerequisites for this workflow.
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Make a notice fact sheet
Before drafting, record these details exactly as they appear:
- issuing authority and contact or proceeding reference;
- your name, PAN and the relevant bank account or accounts;
- assessment year, financial year or tax year;
- the legal section cited;
- dates, amounts and transaction descriptions for the deposits questioned;
- each question or document request;
- the response deadline, time zone if stated, and any extension procedure; and
- the portal, form, email or other submission channel specified.
Do not infer that a transaction shown in an Annual Information Statement (AIS) is itself a statutory notice. AIS information and a formal notice can relate to the same deposit but may require separate actions.
Step 2: Identify what kind of communication you received
Classifying the document prevents a common error: sending an AIS correction when the Department has requested a statutory response, or treating a demand as if it were only an information question.
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Information or compliance communication
This asks you to confirm or explain information, often through an electronic campaign or portal workflow. Follow the communication’s stated questions and channel. Keep a copy of what you submit; an informal-looking message can still have a firm date.
Assessment or scrutiny request
An assessment proceeding may ask for bank statements, books, confirmations or explanations. Answer each numbered request and comply with the format and attachment limits shown in e-Proceedings. If the request concerns several accounts or business cash, organize the evidence account by account and period by period.
Reassessment show-cause notice under section 148A of the Income-tax Act, 1961
The Income Tax Department’s section 148A page states that this show-cause notice allows a period not less than seven days but not exceeding thirty days
from issue, or a longer period if an extension is granted on application. That range applies to this specific 1961 Act procedure; it is not a universal deadline for every cash-deposit notice. The Assessing Officer considers the reply before deciding whether to issue a section 148 notice.
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Notice of demand
Assessment guidance from the Department says that an intimation deemed to be a notice of demand requires payment within 30 days to avoid recovery proceedings. This is a payment period for a demand, not the response period for a request to explain deposits. Read the demand notice for payment instructions, amount, mode and any separate remedy.
Why the tax year matters in 2026
The Department’s portal states that the Income-tax Act, 1961 is repealed with effect from 1 April 2026 under section 536 of the Income-tax Act, 2025. It distinguishes dues up to FY 2025–26 under the 1961 Act from Tax Year 2026–27 onward under the 2025 Act. A current notice may therefore use a different statutory framework from an older article or prior proceeding. Verify the tax year and the actual section printed on your document before relying on any procedure or deadline.
Step 3: Build a deposit-by-deposit reconciliation
Obtain statements for every bank account that could contain a questioned transaction. Use the bank’s complete statement, not only a screenshot of selected entries. Mark the deposits cited in the notice and trace each one to a source.
Use a working reconciliation schedule
| Column | What to record |
|---|---|
| Date | The deposit date exactly as shown in the bank statement and notice. |
| Bank and account | The bank name, account identifier and ownership; mask unnecessary digits in copies shared outside the portal. |
| Amount | The exact credited amount and currency shown in the statement. |
| Source claimed | The real source, such as recorded business receipts, an earlier withdrawal, a transfer between your own accounts, a loan or a gift. |
| Related event or transaction | The sale, withdrawal, transfer, agreement or other event that explains the credit. |
| Supporting record | The document name and page or transaction reference that lets the officer verify the explanation. |
| Issue to explain | Any duplicate reporting, timing difference, mismatch, missing record or other unresolved point. |
Reconcile the entries individually before calculating a total. Check whether the same deposit appears in more than one reporting source, whether money moved between your own accounts, and whether a cash withdrawal was later redeposited. Describe these possibilities only when your records establish them; a plausible story without a document trail is not a reconciliation.
Separate personal and business activity
If you operate a business, compare the deposits with the cash book, sales register, invoices, receipts, daily collection records and accounting entries for the same period. Keep personal deposits and business receipts on separate schedules. Do not relabel business cash as personal savings merely because both reached the same bank account.
Do not manufacture an explanation
Never create, backdate, alter or selectively omit records. Do not ask another person to sign a confirmation for a transaction that did not occur. If a record is missing, say what is missing, why it is unavailable and what independent evidence remains. An honest limitation is safer than a fabricated document that creates a second problem.
Step 4: Match the source of cash to appropriate evidence
There is no universal document list. The notice, tax year and actual source determine what is relevant. The following categories illustrate the kind of trail to assemble; include only records that are genuine and connected to the deposits.
Business receipts or cash sales
- cash book and ledger entries for the relevant dates;
- sales invoices, receipts, order records or point-of-sale reports;
- stock, delivery or service records that corroborate the sales; and
- the bank statement showing the subsequent deposit.
Explain how the amount in the bank relates to recorded turnover and any normal timing gap. If the deposited cash includes amounts already reported in a return, identify where that income appears rather than claiming the deposit is automatically exempt.
Earlier cash withdrawals
- the earlier bank statement entry showing the withdrawal;
- the reason and approximate date the cash was retained; and
- the later deposit entry, with an explanation for any difference in amount or timing.
A withdrawal proves that money left an account; it does not by itself prove that the same cash remained untouched until redeposit. Use other contemporaneous records where available and explain gaps plainly.
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- the statement for the account from which the money was withdrawn or transferred;
- the statement for the receiving account; and
- matching dates, amounts and transaction references.
List both sides so the officer can see that the credit is not a new external receipt. Include all accounts involved if the funds passed through more than two accounts.
Loan, gift or money received from another person
- a contemporaneous loan agreement, gift documentation or written confirmation, where one exists;
- the payer’s identity and relationship to you;
- evidence of the payer’s ability and source of funds appropriate to the transaction; and
- the payer’s bank record showing the transfer or withdrawal, when available.
Do not call a deposit a loan or gift after the fact without evidence of the underlying transaction. A person’s name alone does not establish the source of the money.
Other genuine sources
For salary savings, sale proceeds, agricultural activity, asset sales or another source, assemble the records that actually document that event and its connection to the deposit. The notice may require a particular form or additional evidence. Avoid sending irrelevant sensitive material merely to make the attachment bundle larger.
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Step 5: Check AIS and correct factual errors separately
Compare the AIS entry with your bank statements, books and filed return. Look for wrong PAN attribution, duplicate entries, incorrect amounts, reversed transactions or a date that does not match the primary record.
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AIS feedback does not replace a response to a formal notice. If the notice directs you to e-Proceedings or another statutory route, answer there even when you have also submitted AIS feedback. In your formal reply, explain the mismatch and identify the feedback reference or revised entry without assuming that the AIS correction closes the proceeding.
Step 6: Draft a direct, numbered response
Use the notice’s order
Address each numbered question under a matching heading. Start with a short statement identifying the proceeding, tax year and period covered. Then explain the deposits in the same sequence as the notice and your reconciliation schedule.
A useful paragraph for each entry contains four elements:
- the date, account and amount as shown in the notice;
- the genuine source and the transaction or event that produced it;
- the attachment name and page or reference supporting that explanation; and
- any discrepancy, missing record or correction that still needs consideration.
Use precise language such as “the bank statement credits this amount on [date shown in the statement]” only when the date is supported by the record. Do not make a legal conclusion—such as declaring an amount non-taxable—unless you or your adviser has checked the applicable law and facts. A factual explanation lets the officer apply the correct rule.
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Explain totals and unmatched items
Show how the individual deposits add to any total cited in the notice. If your total differs, identify the exact entries causing the difference. Explain duplicate reporting, transfers between your accounts and timing differences in a separate reconciliation note rather than burying them in a general paragraph.
Ask for clarification or time when needed
If the notice is illegible, omits an account reference or asks for a document you cannot identify, request clarification through the permitted channel before the deadline. If records require more time, apply for an extension before the stated due date and preserve the request. An extension is not automatic; continue preparing the response while you await the decision.
Protect sensitive information
Attach only relevant pages and redact account numbers or identity details that the Department does not need, while leaving enough information to verify the transaction. Follow the portal’s permitted file types and size limits. Keep an unredacted master copy securely in case the officer later asks for a complete record.
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Step 7: Submit through the required portal route
- Sign in to the official e-Filing account directly.
- Open Pending Actions > e-Proceedings.
- Select the proceeding that matches the notice reference and tax year.
- Read the response instructions and choose the relevant response option. The Department manual describes response and attachment steps and, where applicable, a partial-response option.
- Enter the explanation in the portal field or attach the prepared response in the permitted format.
- Upload clearly named, legible supporting documents in the order cited in your reply.
- Review every field and attachment, then submit before the deadline shown in the notice.
- Download or save the final response, attachment list and acknowledgement or reference number.
The e-Proceedings FAQ describes the service as an electronic way to respond to notices, intimations and letters issued by the Income Tax Department. Submitted responses can be viewed later. Do not rely on a browser confirmation alone: preserve the generated acknowledgement and a complete copy of what was filed.
Step 8: Track deadlines and later messages
| Communication or stage | Timing stated by the Department | What it means |
|---|---|---|
| Section 148A show-cause notice under the Income-tax Act, 1961 | At least 7 days and no more than 30 days from issue, unless a longer period is granted on application | A specific reassessment show-cause window; check the notice and applicable Act. |
| Intimation deemed a notice of demand | Payment within 30 days to avoid recovery proceedings | A demand-payment period, not a general cash-deposit explanation deadline. |
For every other communication, use the deadline printed in that document and the procedure it specifies. Record the submission date, acknowledgement number, extension request, portal status and any follow-up notice. If the portal shows a failed upload or incomplete submission, correct it promptly and retain evidence of both attempts.
Step 9: Know when professional help is warranted
Consider engaging a qualified Indian chartered accountant or tax lawyer when:
- the notice begins reassessment or cites a section you cannot identify;
- deposits relate to business cash, several people or multiple accounts;
- books or primary records are incomplete or inconsistent;
- a substantial addition, demand or adverse finding is proposed;
- you dispute jurisdiction, service of the notice or the procedure followed; or
- you have missed the deadline or received a further notice after submitting an explanation.
The portal permits an authorized representative to respond where properly authorized. A professional can assess your particular notice and records, but no adviser can guarantee a result. Give the adviser the complete notice, tax returns, bank statements, AIS, books, prior correspondence and your reconciliation schedule—not just a summary of the deposits.
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- Replying to an email link instead of verifying the portal. Authenticate the proceeding in your official account.
- Using the wrong tax year or Act. The 1961 Act repeal effective 1 April 2026 means older section references may not govern Tax Year 2026–27 onward.
- Sending only a bank statement. A statement proves a credit occurred; it does not, by itself, establish the source.
- Providing one annual explanation for many deposits. Reconcile each challenged entry and show the supporting record.
- Treating AIS feedback as the complete reply. Correct the AIS entry where appropriate, but separately answer a formal notice through its required route.
- Uploading irrelevant or unreadable files. Use clear names, legible scans and only relevant pages within the portal’s limits.
- Inventing a loan, gift or redeposited withdrawal. Unsupported explanations and altered records can undermine otherwise genuine transactions.
- Waiting until the last day to request more time. Apply through the permitted channel before the deadline and retain proof of the request.
- Ignoring a demand because you are preparing an explanation. A demand has its own payment and recovery instructions; deal with it separately.
A practical final checklist
- The notice is visible in the official e-Filing account and matches your name and PAN.
- You have recorded the issuing authority, section, tax year, questioned deposits, questions, deadline and submission route.
- Every challenged deposit appears in a reconciliation schedule with a genuine source and related record.
- Bank statements, books, AIS and the filed return have been compared for duplicate or incorrect reporting.
- Each attachment is relevant, legible, correctly named and referenced in the response.
- Any missing evidence or mismatch is explained honestly.
- A request for clarification or extension was made before the deadline when necessary.
- The response was submitted through the channel specified in the notice.
- You saved the final reply, all attachments, acknowledgement number and any AIS feedback record.
- You have obtained individualized professional advice if the matter involves reassessment, complex cash activity, incomplete evidence or a significant proposed addition.
The key principle
A strong response is a verifiable chain from the Department’s question to each bank credit, the real source of that credit and the record that supports it. The notice type, tax year, deadline and required route determine the procedure; the documents and facts determine the tax result. Follow the document in front of you, preserve a complete filing record and avoid any explanation that your evidence cannot support.
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