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IndiaTax & ComplianceUpdated: Sep 13, 2026
Direct Answer
You must prove the source of cash. Acceptable sources include past cash withdrawals (household savings), cash sales, or cash received as gifts or agricultural income. You must provide cash book extracts and relevant receipts.
The Remedial Documentation
If you receive a notice under Section 142(1) or 148A regarding high-value cash deposits, the burden of proof is on you to show that the cash was legitimate and already taxed (or exempt).
Acceptable Explanations & Evidence
- Past Withdrawals ('virtual cash in hand'): If you withdrew ₹2 Lakhs in May, and redeposited it in July, you can provide both bank statement entries. The AO will allow it if the timeline is reasonable.
- Cash Sales: For businesses, provide your Cash Book and bank deposit slips. Ensure no single invoice exceeds ₹2 Lakhs to avoid Section 269ST penalties.
- Agricultural Income: Provide Farmer certificates (7/12 extracts, Mandi receipts) to prove the income source was exempt.
- Gifts from Relatives: You need a gift deed and proof of the relative's financial capacity (and their ITR, if applicable).
The Consequences of Unexplained Cash
Under Section 68, unexplained cash credits invite a tax rate of 60% plus surcharges, bringing the effective tax rate to nearly 78% on the unexplained amount.