A client with significant cash activity can face several separate income-tax checks, and each has a different subject and aggregation rule. Section 186 of the Income-tax Act, 2025 (legacy Section 269ST) governs certain high-value cash receipts. Rule 237 of the Income-tax Rules, 2026 (legacy Rule 114E/SFT-004 terminology) governs what reporting institutions send to the department. Section 393(3), table item 5 (legacy Section 194N), governs TDS on large cash withdrawals. The Annual Information Statement helps the taxpayer reconcile reported SFT and TDS data. A sound cash-deposit analysis keeps these tests separate.
By the numbers: For tax year 2026-27, Section 393(3), table item 5 sets cash-withdrawal TDS at 2% once aggregate cash paid from one or more accounts with the same payer crosses ₹1 crore for a recipient other than a co-operative society or ₹3 crore for a co-operative society. Under the 2025 Act wording, deduction applies to the entire amount once the threshold is crossed. Source: Income Tax Department.
The four cash-deposit compliance layers at a glance — FY 2026-27
| Layer | Provision | Threshold | Who bears the obligation |
|---|---|---|---|
| Cash receipt limit | Section 186 (old 269ST) | ₹2 lakh per person/day, transaction or linked event | Recipient verifies payer-level facts and permitted modes |
| SFT reporting | Rule 237 (old 114E) | For PAN holders: ₹10 lakh cash in one or more non-current accounts; ₹50 lakh cash deposits/withdrawals in one or more current accounts | Reporting bank, co-operative bank or post office, as applicable |
| Cash withdrawal TDS | Section 393(3), item 5 (old 194N) | ₹1 crore for other recipients; ₹3 crore for co-operative-society recipients | Bank, co-operative bank or post office deducts 2% on the entire amount after crossing |
| AIS reconciliation | AIS/Compliance Portal | Reported SFT and TDS information visible to the taxpayer | Taxpayer reviews, submits feedback where needed and aligns the return |
“The ₹2 lakh cash-receipt rule is not a simple bank-day test. A CA needs payer, transaction and event-level evidence because the bank statement alone cannot establish who paid each cash amount.” — CA Juber Attar, TaxFetch e-CA Tax Expert
What does Section 186 (old 269ST) actually restrict?
Section 186 restricts a person from receiving ₹2 lakh or more through a non-permitted mode — (a) in aggregate from one person in a day, (b) for one transaction, or (c) for transactions linked to one event or occasion from a person. The familiar 269ST label remains useful for searches and older-year records, but 2026-27 working papers should cite Section 186 and check its exceptions and current penalty provisions.
Two common misconceptions arise in cash deposit analysis for income tax. The first is treating it as a simple per-bank-day rule: a screening tool that flags every day on which aggregate cash deposits crossed ₹2 lakh is providing a list of days that need investigation, not a list of confirmed violations. If five different customers each paid ₹40,000 in cash on the same day, the aggregate bank entry might be ₹2 lakh, but no individual receipt breached the per-person limit. The second misconception is that the section applies only to cash receipts into a bank account — it covers any form of cash receipt, whether or not it is deposited immediately.
For CA verification, the working paper for each flagged cash-deposit day should record: the payer identity, the amount received from each payer, the occasion or transaction reference, and the mode of receipt confirmation. Only then can a compliance conclusion be drawn.
How does Rule 237 (old Rule 114E/SFT-004) aggregate bank cash?
Rule 237 requires specified reporting institutions to file Form 165 for listed financial transactions. Cash deposits aggregating across one or more accounts other than current accounts and time deposits use a ₹10 lakh point where PAN is available and ₹5 lakh where it is not. Cash deposits or withdrawals aggregating to ₹50 lakh or more across one or more current accounts are also reportable. The aggregation is therefore not a per-account safe harbour.
Reported SFT information can appear in AIS and be compared with return data. A mismatch does not by itself prove undisclosed income: cash may represent already-recorded sales, transfers, withdrawals redeposited or another documented source. It does create a reconciliation question that should be answered in the books and source file before filing.
The CA Bank Statement Analyzer computes the uploaded statement’s aggregate cash deposits and begins screening at the earliest conditional point of ₹5 lakh. It then shows the ₹5/10/50 lakh Rule 237 branches so the CA can determine account type and PAN status, aggregate the other relevant accounts and reconcile AIS before filing.
How did Section 393 change the old Section 194N withdrawal rule?
From 1 April 2026, cash-withdrawal TDS is in Section 393(3), table item 5. It sets a 2% rate and aggregates cash paid from one or more accounts maintained by the recipient with the payer. The threshold is ₹1 crore for a recipient other than a co-operative society and ₹3 crore where the recipient is a co-operative society. Unlike the older excess-only formulation commonly described under Section 194N, Section 393(3) says deduction applies on the entire amount once the aggregate crosses the threshold.
The resulting TDS should be reconciled with Form 26AS. The CA should total withdrawals across all accounts with each reporting bank or post office, identify the correct recipient threshold, recompute the expected 2% deduction once crossed, match the credit and claim it in the return. A single statement cannot establish the payer-wide aggregate if the client has more accounts with that institution.
AIS reconciliation — the step most CAs skip before filing
AIS brings together information reported through SFT, TDS/TCS and other specified sources. For a client with material cash activity, the CA should review whether Rule 237 cash information and Section 393 withdrawal TDS appear, whether the amounts match the underlying accounts, and whether feedback is required. Do not assume every bank flag will appear immediately or that AIS alone is complete; reconcile it to the client’s full books and statements.
The reconciliation checklist before filing should include:
- Pull the client’s AIS from the income tax portal and compare its cash-transaction figure (including a legacy SFT-004 label where displayed) against the actual bank statement total.
- If the AIS figure differs (banks sometimes over-report or under-report), submit feedback on the AIS before filing — the feedback mechanism allows the taxpayer to mark an entry as ‘information is correct’, ‘information is partially correct’, or ‘information relates to other PAN/year’.
- Ensure that every source of cash deposited is addressed in the ITR — either as declared income (business receipts, agricultural income, professional fees) or as a non-income source (withdrawal from another account, prior savings, gift received, loan taken).
- Reconcile Section 393 cash-withdrawal TDS (legacy 194N search label) in 26AS with the TDS schedule in the return.
The bank statement analysis for CA workflow on TaxFetch is designed to feed directly into this reconciliation — the parsed summary gives the CA the total cash deposit figure and the conditional ₹5/10/50 lakh Rule 237 screen in one place, so the AIS comparison can be done immediately rather than reconstructed from raw transactions.
Limitations of bank-statement-only screening — what the tool cannot do
A cash deposit analysis tool, however comprehensive, operates on the bank statement alone. There are compliance questions it cannot answer without additional information:
- Section 186 payer/event rule (old 269ST): A bank statement shows total cash deposited on a day, not which customer paid how much. Payer-level evidence comes from the cash book, POS records or sales register, not the statement alone.
- Source of cash: Whether cash deposits represent taxable income or non-taxable sources (prior savings, agricultural proceeds, loan repayments received in cash, proceeds from asset sales) is not visible in the bank statement alone. The CA must corroborate with cash-book entries, income declarations, and source documents.
- Multi-account aggregation: Rule 237 expressly refers to one or more accounts. The CA should aggregate relevant accounts held with the same reporting institution and then review other institutions separately; one uploaded statement cannot answer that wider test.
- Non-banking cash: Cash transactions that do not pass through a bank (direct cash sales deposited into petty cash and spent without banking) are invisible to bank-statement analysis. They appear, if at all, only when the cash book or ledger is analysed alongside the bank statement.
These limitations underscore the working-paper principle that tool flags are screening leads, not legal conclusions. The CA’s professional judgment, supported by source documents and ledger analysis, is what converts a flag into a verified compliance position or an identified issue requiring disclosure.
CA verification checklist for cash deposit analysis — FY 2026-27
Run these steps for every client with material cash activity before filing the ITR for FY 2026-27:
- Upload the full-year bank statement to the CA Bank Statement Analyzer and note the total cash deposit figure, the number of days that crossed ₹2 lakh in aggregate (old 269ST screening list), and which conditional Rule 237 point applies: ₹5 lakh without PAN, ₹10 lakh with PAN for non-current accounts, or ₹50 lakh for current-account cash activity.
- Pull the client’s AIS and compare its cash-transaction figure (including a legacy SFT-004 label where displayed) to the bank statement total. Submit AIS feedback if there is a discrepancy.
- For each day on the 269ST screening list, review the cash book and sales register to identify each payer and the amount received from that payer on that day. Only the per-person, per-occasion analysis can establish compliance.
- Trace every material cash deposit to its source in the books — business income, non-taxable source, or unexplained. Flag unexplained entries for client clarification and documentation before filing.
- Verify Section 393 withdrawal TDS in 26AS and confirm the credit is claimed. Aggregate one or more accounts with the same payer and apply the current ₹1 crore or ₹3 crore recipient threshold.
- Where the client received large cash amounts (property sale, gift, loan), ensure the 269ST compliance is documented at the transaction level — not just that the bank deposit was below a threshold, but that each individual cash receipt was below ₹2 lakh per person per event.
For Tally-using clients, running the bank statement to Tally reconciliation alongside this checklist ensures that every bank entry maps to a ledger entry — a gap between the two is itself a red flag worth investigating before the AO does.
Frequently asked questions — cash deposit analysis income tax
Does current Section 186 (old 269ST) apply to every cash deposit above ₹2 lakh?
No — Section 186 tests the receipt by person, transaction and linked event, not the later bank deposit by itself. A bank deposit of ₹3 lakh could represent receipts from 10 customers of ₹30,000 each. A cash-day flag is therefore the start of the inquiry: identify each payer, event and permitted mode before concluding.
What happens if the AIS shows a higher cash deposit figure than the bank statement?
Banks sometimes report on a slightly different basis (e.g., including fixed deposits, or aggregating across multiple branches). The taxpayer can submit feedback on the AIS through the income tax portal to flag the discrepancy. The CA should document the reconciliation and retain the bank statements as supporting evidence. If the discrepancy is not resolved before filing, include an explanation in the return or a covering note.
Is 194N TDS a final tax or can it be credited against the total tax liability?
The withholding now governed by Section 393 is not a separate final tax on the withdrawal. It should appear in Form 26AS and can be claimed in the TDS schedule subject to the normal credit rules. The CA should reconcile the bank’s deduction rather than relying on the old 194N computation.
What is the current Rule 237 threshold (old SFT-004)?
Under Rule 237, cash deposits or withdrawals aggregating to ₹50 lakh or more across one or more current accounts of a person are reportable. Cash deposits across one or more non-current, non-time-deposit accounts use ₹10 lakh where PAN is available and ₹5 lakh where it is not. These are annual aggregate reporting thresholds, not per-transaction tax limits.
Can a cash deposit analysis tool replace CA professional judgment?
No — and no responsible tool claims otherwise. A bank statement analysis tool automates the mechanical first pass: parsing transactions, totalling cash by day, flagging days that crossed a threshold, and identifying patterns. The professional judgment on whether each flag represents a compliance issue, what documentation is needed, and how to address it in the return belongs exclusively to the CA. The tool produces a structured working-paper starting point; the CA produces the verified compliance position.
Run the cash deposit screening on your client’s statement instantly
Upload any bank PDF or Excel and get current Section 186 cash screening, Rule 237 SFT review, Section 393 withdrawal analysis and Sections 102/104 credit flags in one working paper — with old labels retained for search and older-year reference.
Summary — cash deposit compliance for FY 2026-27
- Section 186 (old 269ST) operates per person, transaction and linked event — not as a simple bank-day aggregate. Cash-day flags require payer-level verification.
- Rule 237 aggregates one or more relevant accounts: ₹10 lakh cash deposits for PAN holders in non-current accounts, ₹5 lakh without PAN, and ₹50 lakh cash deposits or withdrawals in current accounts.
- Section 393(3) (old 194N) applies 2% TDS to the entire amount after aggregate withdrawals cross ₹1 crore for other recipients or ₹3 crore for co-operative societies.
- AIS reconciliation before filing is essential — compare the AIS cash-transaction figure (including the legacy SFT-004 label where shown) to the bank statement, submit feedback for discrepancies, and ensure every source of cash deposit is addressed in the return.
- Bank-statement-only analysis has structural limits (no payer identity, no non-banking cash, no multi-account aggregation) — the CA must supplement it with cash books, ledgers, and source documents.
- Start with the CA Bank Statement Analyzer for the structured working-paper first pass, then apply professional judgment to each flag with the full client file in hand.
