Cash Deposit Limit in Bank as per Income Tax Act: Complete Guide for 2024
In India, the Income Tax Act governs various financial transactions, including cash deposits in banks. Understanding the cash deposit limit is crucial for individuals and businesses to avoid penalties and scrutiny from the Income Tax Department. This article provides an in-depth analysis of the cash deposit limit in banks as per the Income Tax Act, along with related rules and implications.
Cash Deposit Limit in Savings Account
As per the Income Tax Act, cash deposits in a savings account exceeding a specific threshold may attract scrutiny:
- Limit: Rs. 10 lakh per financial year.
- Reporting: Banks are required to report cash deposits exceeding this limit to the Income Tax Department under the Annual Information Return (AIR).
Implication: If an individual deposits more than Rs. 10 lakh in their savings account in a financial year, they may receive a notice from the Income Tax Department asking for the source of funds.
Cash Deposit Limit in Current Account
For current accounts, the threshold for cash deposits is higher, considering business-related transactions:
- Limit: Rs. 50 lakh per financial year.
- Reporting: Banks will report cash deposits exceeding this limit to the Income Tax authorities.
Implication: Business owners and professionals depositing large sums should maintain proper documentation to justify the source of funds.
Cash Deposit Limit During Demonetization
During the demonetization period in 2016, special guidelines were introduced:
- Cash deposits above Rs. 2.5 lakh during the demonetization period (November 9, 2016, to December 30, 2016) were scrutinized by the Income Tax Department.
While these specific rules were temporary, they highlighted the importance of maintaining proper records for large cash transactions.
Savings account transaction limit year without tax
The transaction limit for savings accounts in India without attracting tax implications is primarily governed by the Income Tax Act. For cash deposits, the limit is ₹10 lakh per financial year.
If the total cash deposits exceed this threshold, the bank reports the transaction to the Income Tax Department under the Annual Information Return (AIR). While no direct tax is levied on the deposit itself, unexplained deposits may be treated as taxable income under Section 115BBE, attracting a tax rate of 60% along with surcharge and cess. In terms of cash withdrawals, there is no specific tax-free limit, but withdrawals exceeding ₹1 crore per financial year from one or more bank accounts attract a 2% TDS under Section 194N.
This threshold increases to ₹3 crore if the account holder has filed Income Tax Returns (ITR) for the last three years. For non-cash transactions, such as NEFT, RTGS, IMPS, and UPI, there is no tax liability unless the total credits appear inconsistent with the account holder’s declared income, prompting possible scrutiny by tax authorities.
Additionally, interest earned on savings accounts is exempt up to ₹10,000 per year under Section 80TTA for individuals below 60 years and ₹50,000 under Section 80TTB for senior citizens.
Any interest earned beyond these limits is added to the account holder’s taxable income and taxed as per applicable income tax slabs. To avoid tax notices, account holders should ensure that cash deposits remain below ₹10 lakh annually, withdrawals are kept under ₹1 crore, and all interest income is accurately reported while maintaining proper documentation for high-value transactions.
Savings account transaction limit per day
The daily limit for cash deposits in a savings account is Rs. 2 lakh per transaction, per person, and per day. This limit is set by the Reserve Bank of India (RBI).
PAN Requirement for Cash Deposits
To ensure transparency and traceability, the government mandates PAN submission for certain cash deposits:
- Single Deposit: Cash deposits exceeding Rs. 50,000 in a single transaction require PAN details.
- Cumulative Deposits: If the total cash deposits exceed Rs. 10 lakh in a financial year across all bank accounts, PAN submission is mandatory.
Tip: Always provide your PAN details when making large cash deposits to avoid complications during tax filing.
Penalties for Violating Cash Deposit Limits
If cash deposits exceed the prescribed limits without proper documentation, the Income Tax Department can initiate the following actions:
- Scrutiny: The depositor may receive a notice under Section 142(1) or Section 143(2).
- Penalty: Under Section 271DA, a penalty equal to the deposited amount may be imposed if the source of funds is unexplained.
- Taxation: Unexplained cash deposits may be taxed at a flat rate of 60% under Section 115BBE, along with surcharge and cess.
Tip: Always maintain proper records, such as sale receipts, invoices, and tax returns, to justify the source of cash deposits.
How to Avoid Income Tax Notices for Cash Deposits
To avoid tax notices and penalties, follow these best practices:
- Maintain Proper Records: Keep invoices, receipts, and bank statements to explain the source of cash deposits.
- Use Digital Payments: Prefer digital transactions for high-value payments to reduce cash dealings.
- File Income Tax Returns (ITR): Ensure timely and accurate filing of ITR, reflecting all significant cash deposits.
- Declare Business Income: If you run a business, declare all cash receipts as part of your income while filing taxes.
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