IT Act 2025: Banks and financial institutions have to give information about transactions of more than Rs 10 lakh (savings account) or Rs 50 lakh (current account) to the Income Tax Department. This focuses on keeping an eye on large cash transactions.
Income Tax Act 2025: Under the Income Tax Act 2025, a limit has been fixed for cash deposit in a savings account. This is the limit that a person can deposit in a specified time. This rule has been made to monitor cash transactions so that money laundering, tax evasion and other illegal activities can be prevented. If a person deposits Rs 10 lakh or more in cash in his savings account in a financial year, then he has to inform the Income Tax Department. For current account, this limit is Rs 50 lakh.
Responsibility of banks
Although these deposits are not taxed immediately, banks and financial institutions have to report transactions of more than Rs 10 lakh (savings account) or Rs 50 lakh (current account) to the Income Tax Department. This focuses on keeping an eye on large cash transactions.
Section 194N: Rules on cash withdrawal
Under Section 194N of the Income Tax Act, there are rules for Tax Deducted at Source (TDS) on cash withdrawals. If a person withdraws more than Rs 1 crore in a financial year, 2% TDS is deducted. For those who have not filed Income Tax Return (ITR) for the last three years, 2% TDS is applicable on withdrawals of more than Rs 20 lakh and 5% TDS is applicable on withdrawals of more than Rs 1 crore. This TDS is not considered as income but can be used as a credit while filing ITR.
Section 269ST: Penalty on cash transactions
According to section 269ST, if a person accepts two lakh rupees or more in cash in a year or in a single transaction, then he can be fined. However, this penalty does not apply to cash withdrawal from the bank. Still, TDS is deducted if the withdrawal limit is exceeded.
Section 269SS and 269T: Rules on cash loans
Section 269SS and 269T are related to cash loans. If a person takes or repays a cash loan of more than Rs 20,000, then he may have to pay a penalty of the same amount. To follow these rules, it is important to understand the income tax rules. For those doing business, if the deposit amount matches the turnover of the business declared in their income tax return, especially under section 44AD/44ADA, then there is no penalty of any kind. But if the deposit amount is different from the business, then the Income Tax Department can investigate it.
Section 68: Proving the source of income
If a person is unable to prove the source of his income, the Income Tax Department can issue a notice under Section 68. In such a situation, 60% tax, 25% surcharge and 4% cess can be imposed on unverified income. This can become a heavy tax burden.
How is tax levied on cash deposits?
If you deposit more than Rs 10 lakh in a savings account or Rs 50 lakh in a current account, you have to inform the Income Tax Department. This deposit amount is not directly taxable, but if the source of income is not clear, then an investigation can be conducted. Non-compliance of the rules can lead to a penalty or additional tax.
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