A bank account helps you manage your money by allowing deposits and withdrawals. However, certain rules apply to your bank account. If you make a mistake, you could face up to a 60% tax penalty. According to the Income Tax Department, if you deposit cash in your account without disclosing the source of income, a heavy tax will be charged, including a 25% surcharge and a 4% cess. This news explains the rules for cash deposits in simple terms.
If You Can’t Tell the Source of Income, You Will Have to Pay 60% Tax
According to Section 68 of the Income Tax Act, the Income Tax Department has the right to issue a notice and collect 60% tax if the source of income is not disclosed. The government is continuously working to encourage people to use less cash. By imposing cash deposit limits on savings accounts, the aim is to stop money laundering, tax evasion, and illegal financial activities.
Information Must Be Provided If You Deposit More Than Rs 10 Lakh in Cash
As per the Income Tax Act, if you deposit more than Rs 10 lakh in a savings account in a financial year, you must inform the tax authorities. For current accounts, this limit is Rs 50 lakh. However, it’s important to note that there is no immediate tax on depositing cash beyond this limit. If you provide the correct information, no tax will be imposed.
2% TDS Will Be Deducted on Withdrawals Above Rs 1 Crore
Section 194N of the Income Tax Act states that a 2% TDS will be deducted on withdrawals of more than Rs 1 crore from a bank account. However, if you haven’t filed your Income Tax Returns (ITR) for the last 3 years, you will have to pay 2% TDS on withdrawals above Rs 20 lakh and 5% TDS on withdrawals above Rs 1 crore.
Cash Deposit Limit in Savings Accounts
The cash deposit limit in savings accounts refers to the maximum amount of cash an individual can deposit within a specified period without attracting the attention of tax authorities. This limit is set by income tax regulations to monitor cash transactions and prevent money laundering, tax evasion, and other illegal financial activities.
According to the Indian Income Tax Act, individuals who deposit cash in their savings account and accumulate INR 10 lakh or more during a fiscal year must notify the tax authorities. For current accounts, this reporting threshold is higher, at INR 50 lakh. Although these deposits are not subject to immediate taxation, banks are required to report transactions exceeding these limits to the Income Tax Department.
Taxation of Cash Deposits
Deposits made in a savings account exceeding INR 10 lakh per year must be reported to tax authorities. For current accounts, the threshold is INR 50 lakh. While these deposits are not immediately taxed, banks must report transactions above these limits.
Other Cash Transaction Limits
- Cash Deposit Limit in Current Accounts: The cash deposit limit for current accounts is typically higher because businesses deal with large volumes of cash. For example, the limit in SBI for current accounts is INR 5 lakh to INR 100 crore per month. In HDFC, the limit is INR 60 lakh or ten times the value of the current monthly balance.
- Cash Transaction Limit: Section 269ST restricts cash transactions to INR 2 lakh per day.
- Cash Withdrawal Limit: While withdrawal limits vary between banks, large withdrawals are reported to tax authorities to prevent illegal activities like money laundering.
- Cash Gift Limit: Cash gifts above INR 50,000 in a single financial year may be taxable. Gifts from immediate relatives are exempt from tax.
- Fixed Deposit Limit: Tax-saving fixed deposits have a maximum deposit limit of INR 1.5 lakh per financial year for tax benefits.
- Credit Card Bill Payment Limit: Cash payments for credit card bills are limited, for example, SBI allows INR 50,000 per day, and HDFC allows INR 49,000.
- Real Estate Transactions Limit: Real estate transactions cannot exceed INR 20,000 in cash. Section 269SS imposes penalties for cash payments above this threshold.