In this article, we will provide details related to Savings Account cash deposit limits set forth by the Reserve Bank of India (RBI) and the corresponding income tax regulations. These rules are of utmost importance for both individuals and businesses to ensure compliance and steer clear of penalties. Let’s navigate through these guidelines under different headings.
CASH DEPOSIT LIMITS IN SAVINGS ACCOUNTS AS PER INCOME TAX
The RBI has laid down specific cash deposit limits applicable to savings accounts to deter excessive cash transactions. Here’s what you need to be aware of:
The daily cash deposit threshold for savings accounts stands at ₹1 lakh. Depositing more than this amount within a single day could trigger a notification to the tax authorities, subjecting the transaction to increased scrutiny.
The annual cash deposit limit for savings accounts is ₹10 lakh.
ADDITIONAL RULES AND CASH TRANSACTION THRESHOLDS
Beyond savings accounts, various other transactions come with their own set of regulations and cash deposit limits:
Current Account Deposit Limit:
Current accounts, primarily employed for high value business transactions, impose a deposit limit of ₹50 lakh. Exceeding this limit may result in notices from the Income Tax (IT) department.
Fixed Account Deposit Limit:
Cash deposits in fixed accounts must not surpass ₹10 lakh. Nevertheless, you have the option to create fixed deposits of larger sums through online banking and cheques.
Credit Card Bill Payment Ceiling:
When settling credit card bills in cash, the transaction ceiling is ₹1 lakh. For payments exceeding this amount, it’s advisable to consider digital or cashless payment methods. Any payment exceeding ₹10 lakh in credit card bills during a year necessitates disclosure to the IT department via Form 26AS during the tax filing process.
Investment Limits for Stocks, Mutual Funds, Bonds, or Debentures:
Ensure that your total investments in shares, bonds, mutual funds, or debentures do not cross ₹10 lakh annually.
PAN Card Requirement Guidelines:
Transactions exceeding ₹50,000 in a day or ₹20 lakh in a year mandate the use of a PAN card. Individuals lacking a PAN must apply for one at least seven days before engaging in any cash transactions.
Cash Transaction Threshold:
Indian tax laws prohibit any single cash transaction exceeding ₹2 lakh. For transactions involving larger sums, it’s advisable to utilize alternative methods such as bank transfers, debit cards, credit cards, or cheques.
Cash Gift Limit:
Even when gifting cash to family and friends, cash gifts surpassing ₹2 lakh in a single day are not permissible. No individual can receive a cash gift exceeding this amount in a single transaction. Violations may result in penalties equivalent to the transaction amount.
Health Insurance Premium Requirement:
To qualify for deductions under Section 80D, health insurance premiums must be paid through digital channels like net banking, cheques, or UPI, and not in cash.
Cash Loan Cap:
Whether from financial institutions or acquaintances, cash loans cannot exceed ₹20,000. The same limit applies to debt repayments. Amounts exceeding ₹20,000 should be transacted through net banking or UPI.
Real Estate Transaction Regulations:
All real estate sales and purchases must be reported to the tax department via Form 26AS, as property registrars disclose sales and investments exceeding ₹30 lakh in immovable property.
Cash Transaction Limit for Property Transactions:
The maximum cash transaction limit for property transactions is ₹20,000, even when an advance is involved.
Expenditure Claim Restrictions for Self Employed Individuals:
Self employed individuals cannot claim expenses exceeding ₹10,000 in a single day if paid in cash. However, the transportation expenditure limit is ₹35,000.
PAN AADHAAR NECESSITY IN SPECIFIC TRANSACTIONS
PAN Aadhaar linkage is obligatory for specific transactions:
Depositing ₹20 lakh or more in cash in one or more accounts within a financial year.
Withdrawing ₹20 lakh or more in cash from one or more accounts within a financial year.
Opening a current account or cash credit account with a banking company, cooperative bank, or post office.
ENHANCED SCRUTINY ON CASH TRANSACTIONS
The government’s objective is to enhance tax compliance by closely monitoring substantial cash transactions. With the PAN number, the Income Tax Department can easily track such transactions, especially when individuals fail to file income tax returns. This initiative forms part of a broader effort to encompass more individuals within the tax net.
SECTION 194N: CASH WITHDRAWAL AND TDS
When it comes to cash withdrawals, the Indian Income Tax Act provides specific guidelines under Section 194N. This section outlines the rules for Tax Deducted at Source (TDS) on cash withdrawals. Here’s what you need to know:
Cash withdrawals exceeding INR 1 crore within a fiscal year are subject to a 2% TDS.
For individuals who haven’t filed their income tax returns for the past three years, a 2% TDS is applicable to cash withdrawals exceeding INR 20 lakh.
In cases where cash withdrawals go beyond INR 1 crore in the same financial year, a higher TDS rate of 5% is imposed.
It’s important to note that the TDS deducted under Section 194N is not considered as income. However, it can be utilized as a credit when filing your Income Tax Returns (ITR).
SECTION 269ST: PENALTIES FOR CASH RECEIPTS
Moving on to Section 269ST of the Income Tax Act, this section imposes penalties on individuals who receive INR 2 lakh or more in cash within a specific year or transaction. It’s crucial to understand that this penalty does not apply to bank withdrawals. However, it’s important to note that TDS deductions are applicable to cash withdrawals that exceed the established limits.
SECTIONS 269SS AND 269T: REGULATIONS ON CASH LOANS
Sections 269SS and 269T of the Income Tax Act are relevant when it comes to cash loans. Accepting or repaying cash loans exceeding INR 20,000 in a given year may result in penalties equivalent to the amount of the cash loan.
BUSINESS CONTEXT: 44AD/44ADA
In a business context, deposits that align with the business turnover declared in the income tax return, particularly those under Sections 44AD/44ADA, are exempt from penalties. However, deposits that are unrelated to business operations may draw the attention of the tax department.
UNVERIFIED INCOME SOURCES: SECTION 68
The Income Tax Department holds the authority to issue notices under Section 68 of the Income Tax Act when individuals cannot authenticate the source of their income. In cases where the income source remains unverified, a 60% tax, along with a 25% surcharge and a 4% cess, is imposed.
STAYING INFORMED: COMPLIANCE WITH INCOME TAX REGULATIONS
To ensure compliance and proper handling of cash transactions within the framework of the law, it’s essential to stay updated with the latest income tax regulations and guidelines. Being aware of these rules will help individuals and businesses navigate the intricacies of cash deposits, withdrawals, and transactions while avoiding penalties and legal issues.
CONCLUSION
Significant deposits and withdrawals can lead to penalties and legal notices from the income tax department. Consequently, it is increasingly imperative to embrace digital banking for smooth and hassle free transactions. Online savings account opening not only offers convenience but also comes with fewer limitations, rendering financial transactions more efficient and in harmony with the law.
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